Jerónimo Martins, SGPS, S.A. (JMT) Earnings Call Transcript & Summary

Good day, and welcome to the Jerónimo Martins First Half 2026 Results Conference Call. Today's conference call is being recorded. At this time, I would like to turn the conference over to Ms. Ana Luisa Virginia, Chief Financial Officer of Jerónimo Martins Group. Please go ahead, madam.

Thank you, Nadia. Good morning, ladies and gentlemen, and thank you for joining this call to present our first half results. As a reminder, in our corporate website, you can end the results release, a slide presentation and fact sheet for period. The first half of 2026 proved more demanding than we initially anticipated, particularly with regard to strong pressure on prices and fuel-related costs. Heightened geopolitical uncertainty kept consumers cautious and focused on low prices and promotions in what food is concerned and competition did not ease in the sector. Against this backdrop, all our banners delivered solid sales and EBITDA by protecting price competitiveness, strengthening their value propositions and executing efficiently. Volume-led growth, combined with careful margin mix and reinforced focus on efficiency drove group sales up by 5.1% or 4.5% at constant exchange rates to EUR 18.3 billion and EBITDA to increase 7.6%, reaching EUR 1.2 billion with margin at 6.8%, 16 basis points ahead of the same period last year. Every business expanded EBITDA margin, contributing to the solid delivery. Excluding IFRS 16, the group closed June with a net cash position of EUR 11 million after having paid EUR 409 million to its shareholders. Starting with the income statement. The Group delivered strong operational performance despite substantial basket deflation at Biedronka and also at Hebe and low basket inflation in Ara and sales grew 5.1%, driven by strong volumes in Everbene. EBITDA grew 7.6% ahead of sales and margin rose 16 basis points to 6.8%, reflecting better mix, scale and strict cost control. Higher financial costs mainly result from the execution of the expansion program and its impact on interest from capitalized leases while in other profit and losses, we've included EUR 40 million contribution out of the 2025 result to the Jerónimo Martins Foundation. This heading also incorporates write-offs resulting from remodel initiatives and provisions net of compensations received for legal proceedings. Cash flow before dividends was negative at EUR 332 million. Basket deflation at Pedro impacted sales growth and trade payables and weighted on cash generation. Despite the increased pressure, the balance sheet remains solid. The half year position reflects capital investment of EUR 412 million and the payment of EUR 409 million dividend. Investments remained aligned with our strategic priorities. The H1 CapEx focused on intention of our store network, store remodelings and logistics improvements. Throughout the period, the group opened 124 stores and remodeled 115. On logistics, other opened a new distribution center in Medellin early in the year, and Biedronka inaugurated its 18th distribution center in Southeastern Poland in late June. The latter facility is expected to reduce annual travel by almost 1 million kilometers further improving an already very efficient operations. Focusing now on group sales. Volume growth across all banners drove H1 sales, reflecting competitive pricing adequate assortments and disciplined execution. Group like-for-like in the period was at 1.4%. Turning to sales performance by banner. I will start with Biedronka. The Polish food retail market remained extremely challenging with subdued demand price-sensitive and promotions-driven consumers, intense competition between the players and a fast slowdown of food inflation, which turned negative in June. In this context, the consolidated its price leadership while continuing to optimize assortment and to further enhance its value for money proposition to Polish consumers. Sales grew 1.7% to EUR 12.6 billion or 1.9% in local currency, with like-for-like up 0.2% despite significant basket deflation. H1 volumes rose by around 5%, offsetting the impact of like-for-like from deflation and preserving our main banners market share. deflation accelerated markedly in Q2, resulting in sales slightly below Q2 25 and in a like-for-like of minus 1.6%, while like-for-like volumes grew by more than 4%. Turning now to Hebe. Despite intense competition leading to greater basket deflation, heavy fine-tune its assortment and strengthen its value proposition across online and off-line channels. Sales rose 5% to EUR 312 million or 5.3% in local currency, with like-for-like up 2.4%. Portuguese consumers continue to look for savings with pricing promotions driving most purchasing decisions. Being those remain highly competitive while strengthening its value proposition throughout the ready meals offer that combines convenience, quality and differentiation. Total sales grew 5.3% to EUR 2.7 billion and like-for-like, excluding fuel, reached 3.7% supported by strong volume growth in the context of low basket inflation. In the second quarter, sales increased 3.3%, with like-for-like, excluding fuel, at 1.9%, again reflecting solid underlying performance and the competitiveness of the offer. After a first quarter affected by severe storms in Portugal Central region, the [indiscernible] sector entered the summer season last time than in the same period of 2025. Despite the more challenging backdrop, [indiscernible] continued to demonstrate resilience and competitiveness in both [indiscernible] and traditional retail segments. Sales increased 2.5% to EUR 673 million, with like-for-like at 1.3%. In the same quarter, in a softer trading environment, sales grew 1.8% and like-for-like reached 0.3%. Finally, Ara. In Colombia, despite stronger demand and improved consumer confidence, market environment remains challenging, with strong promotional intensity across the food retail sector. Are continued to strengthen its brand awareness and consumer traction through disciplined execution of its expansion program and a value proposition tailored to Klite. This approach boosted another period of strong sales growth. Sales increased 30.2% in euros and 21.1% in local currency, reaching EUR 2 billion. Like-for-like was 6.8%, driven primarily by volume growth as I operated with very low basket inflation. In the second quarter, sales increased 21% in local currency, while like-for-like accelerated to 7.5%. In euros, sales increased 36.9%. Looking now at the profitability and margins. Across the group, our businesses remain focused on protecting price competitiveness while continuously improving efficiency and effective cost management. Therefore, despite significant basket deflation at Biedronka and Hebe, and low inflation across the remaining businesses, EBITDA reached EUR 1.2 billion, an increase of 7.6% ahead of sales growth. As referred, this performance was supported by rigorous management of every profitability driver, namely volume growth, sales mix and efficiency. Zooming in at margins by banner. Every business improved its EBITDA margin in the first half. At Biedronka, the margin increase translates continuous efforts to optimize assortment and improve store layouts, leading to enhanced sales mix. Also contributing to this performance was a disciplined focus on cost control and efficiency gains. At Hebe, margin improved, supported by the work carried out on sales mix optimization, differentiation and strict cost management. In Portugal, ongoing work on margin mix, operational discipline and efficiency measures, leverage margin progression at both Pingo Doce and Recheio. At Ara, EBITDA margin benefited from strong like-for-like performance, growing scale and assertive cost management. Overall, the group margin increased from 6.6 in to 6.8% in the first 6 months of 2026. Let me conclude with a few final remarks. The context in the first half of 2026 proved harder than we expected. Nonetheless, this set of results proved the resilience of our business and the quality of execution across banners, especially in light of the significant deflationary pressures faced particularly by our Polish operations, and the continued impact of higher labor, rental and fuel-related costs. This performance was only possible because our teams continue to execute with the termination, focused on serving consumers, protecting price competitiveness and improving the offer. These actions drove strong volume growth in all our banners and reinforced consumer preference. Across the group, better mix, operational discipline, efficiency gains and rigorous cost control, leverage profitability and enabled everyone to improve its EBITDA margin. These results reinforce our confidence in the competitive strength of our banners in the quality of their value propositions and in their ability to create sustainable long-term value. Regarding the outlook, we remain vigilant about the operating environment. Based on the information currently available, we do not anticipate any material improvement in market conditions during the second half. Geopolitical uncertainty, limited visibility and pressure on consumer confidence should persist and therefore, consumers are very likely to keep focused on low prices and promotions fueling market competition. Our priority, therefore, remain unchanged, protecting competitiveness, ensuring consumer preference and improving efficiency. The investment program for the year is capped at around EUR 1.2 billion, focused on growth store modernization and logistics. Our teams will continue to closely monitor the context, keeping the flexibility to adjust our excision if deemed necessary. Thank you for your attention. Operator, I am now ready to take questions.

[Operator Instructions] And now we're going to take our first question and it comes line of Will Woods from Bernstein.

When you look at Poland, when do you think food inflation will turn in the Polish market? Do you think food PPI could turn positive in Q3? And then second one is when you look at the Polish margin expansion, you've obviously done a great job controlling the cost there. can you give a little bit more detail on what you're exactly doing? You mentioned store processes, assortment mix and store layout, how has that fed into gross margin expansion?

So as we mentioned, so I think that we flagged this in the results release because as you probably remember, I mentioned in the first quarter call that we were expecting somehow, depending on the cycle of production that the cost pressure would come in and turn probably into inflation in the second half of the year. At this point, and as we already left the second quarter, we don't see that happening at least in some of the main caters of our banners and particularly on Poland. And that's why we are flagging that currently, we do not see in terms of the deflationary pressure, any change in the context. This is mainly the big difference versus what I referred in Q1. So for us, it's now very difficult to say. It's true that we will have some better comparables, particularly from September onwards, as we also mentioned. But what we are seeing is several sources of pressure on prices. We do not see, for instance, on the supply part, as I referred in some of our most multipotent categories, we are -- our suppliers are also operating in deflation. And this has to do with several dynamics of the market. I'll give you the example of meat, which is a quite important category or even the or fruits and vegetables, for instance, in Portugal, where as you have good harvest or good productions or you have some constraints in the demand, then this puts pressure because you have to put the product in market. And this, of course, to help our consumers to buy more leads to further price decreases. Then of course, you have the consumer environment or the consumption environment and also the competition dynamic. -- because every player, and it's not in Poland, but it's particularly harsher in Poland is pushing for volumes to somehow compensate for the deflation that is happening in the market. So currently, I'm being totally blind with you and totally honest, we do not see at this point when the turning point will take place. So it's probably getting easier in the fourth quarter. In the third quarter, I think it's going to be difficult from what we are seeing currently, as I said, in the dynamics, even in the first month of the third quarter. For Polish margins, yes, they did a great job. I think that's -- of course, as the company ended the year already in deflation, it's true that it needs really a remarkable work on 1 hand in the offer and also the fact that it had worked on its layout in terms of the stores to keep it more efficient to help the operations and our colleagues in the stores to be able to replenish and to do the -- all the execution in a more efficient way. And I think that pays off. Of course, there may be a kind of a seasonal effect here. Easter is usually a season where you have a harder execution -- and this also happened in Christmas and in some periods in summer. Q2 didn't have the whole period of Easter. So either in terms of the gross margin and also in terms of the cost pressure, it eased a little bit because it tends to be more competitive also during this more peaks in terms of sales and what we saw also. So better mix, also some ease from the comps in Easter, both in cost and in margin. And of course, also some processes that are now more linear for our operations, and I'll give you the example of the VR system that started, as you know, in the third quarter last year. that is now -- it's a big burden to our colleagues in the stores to have -- to take care of that as the return of the bottles, but it's already somehow in a cruise mode, which also helped, and it's more noticeable in quarters where, of course, the sales tend to be slightly more pressured as it happens in the second quarter. So I think really, it's, as you mentioned, really, and I agree it was really a great job from our colleagues in Poland.

Now we're going to take the next question. And the question comes line of Frederik Wild from Jefferies.

They're all about Poland, please. So first of all, I don't you could comment on exit rates for beer [indiscernible] current trading, whether there's been any shift in the consumer environment there? Second, if we take a sort of a bit of a step back, it seems a very surprising, very impressive margin beat in Q2. Would you ordinarily be looking to reinvest a little bit more of that margin context? And can we see that as 1 of the limiting factors for half 2? And finally, the volume picture in terms of how you're reporting remains incredibly positive. Can you just give us a sense of the breakdown of how much of this was market share? How much of this was mix? How much of this was the underlying Polish consumer?

Fred, I have to say, it was very hard to hear you, but I will try to address your questions. If there is any thing that I do not answer, please come back because it was really slightly harder to listen to you. So in terms of consumer environment, in fact, we are not seeing any major change in the consumer environment. I think the or at least in what food is concerned from the numbers and even the official figures that we have access the savings continue to increase. So I believe it's not really an issue regarding available income of the Polish consumer. I think it tries to say whenever it is possible. So in what food is concerned, at least, it remains quite cautious. And of course, as the rest of that dynamic allows to also decrease prices because part of this, we have to say, part is, as I said, supplier-driven and party is still a correction on of the higher-priced commodities even from last year. So there is here a dynamic regarding commodities regarding harvest particularly on the fresh products and on the groceries and some other dynamics that are pushing also deflation from the supplier side, as I said. And I think that if the consumer can buy at better prices, of course. It will not -- it is at least in some categories slightly I wouldn't call it probably taking up, but it's willing to buy, and that helped by some categories that are a little bit more value added. -- and contribute positively to the mix, and that happens. But overall, we are not seeing a change in the consumer environment in Poland. Of course, the competitive environment is also quite difficult. It did ease on the contrary, I have to say. I think that more players are now also playing, of course, with the promotions. And so we are seeing all the players in the market trying to drive volumes also to try to compensate what they are seeing, which is apparently at least from some of our competitors decorations they have been saying that they are so operating in deflation, and we believe so. from the numbers that we see. So if we are going to invest part of this margin in competitiveness, 1 thing is for sure. Biedronka will want to provide the best prices and the best opportunities to the consumer, the Polish consumer, and that's what it has been doing. If I think all the levers that justify the margin increase in the second quarter will apply in the second half, probably not. But we will do everything to protect margin, not losing competitiveness. So if we have to invest a little of these margins as a probably we will, if that compensate in terms of sales. Of course, it's a difficult balance. It implies really hard work from our teams, but it's -- I'm sure that it's what they will try to do, so be the most competitive. And if they will have to, of course, invest a little bit more of margin they will do it. On the volume and on the market share from the information that we got on JFK until May, our market share was more or less stable -- but from the numbers that we got in June, I think that it even increased slightly in the whole period. This is the information that I can provide you and I think that really Biedronka was able not only to craft the promotions but to give really good opportunity that justify the fact that even in June, it really delivered a very good performance in terms of volume growth.

Now we're going to take our next question. And the question comes from line of [indiscernible] from RBC.

I also had 2, if I may. I guess you mentioned that not all the cost levers will apply in the second half. I just wondered if you could give more color on sort of what might fall away? What's been done and where you still see sort of incremental benefit? And then my second question is I just wondered if you could give us an update on how performance in Slovakia is going?

So what I mentioned, of course, is we are -- at this point, we are not -- or we do not have visibility on how or what will be the level of price pressure. So the information that we got is at least in some of the categories -- this is not just the of the competition and of the cautious consumer is really supplier driven. The part of the deflation, as I said, is the correction move. So we don't know how this will play it can play on the positive side, but we are not still seeing these signs at this point. In terms of the things that can put a little bit more pressure, of course, the comparables are also different. We also had good volumes last year. So it really depends on the dynamic of the market. And on how even our competitors will react. As I said, Biedronka will make sure that it will continue to be the price leader. It will continue to offer the Polish consumer good opportunities. And this is something that it's really the signature of the brand and what we are doing. We think that the consumer will stay very cautious. At least we don't see even from the -- as we said, from the geopolitical point of view and on the fuel-related costs, et cetera. So that part will definitely not improve in principle. At least we are not seeing that happening currently which will add further pressure, for instance, on the transportation costs that we have was seen already increased and will further increase as we have more volumes in the second half of the year. So in Q2, as I said, it was not particularly so hard in terms -- it was hard in terms of the execution of the volumes, but it's also in terms of the execution to -- it tends to be harder when you have the peak of sales and certain periods where even the competition tends to be high. So Christmas, the way that Christmas will play and even the summer may put some extra pressure on our operational costs and on the competition. So -- but at this point, as I said, it's difficult to say. I can tell you is that we will protect and try to protect margins as it was done really in the first half, which is more comparable than just the first or the second half versus last year. On Solvia, so we are currently operating 17 stores. It's -- as we mentioned, the licensing process is much -- it takes longer than in Poland. So -- but we expect still open the level of stores that we have in our outlook. And of course, as we introduce scale, it also improves some of the KPIs and that includes, of course, not only the gross margin, the inventory losses, et cetera, and it helps dilute the costs that we also have in logistics and head office. So the aim is, of course, to progress and to progress on a positive way. It's still EBITDA dilutive, but it's normal at this stage of the business in the country.

Now we're going take our next question. And the question comes from line of Luis Colaco from JB Capital.

Thank you very much and congrats for the good set of results. 2 or 3 questions, if I may. The first one, if you could give us a breakdown of your sales growth in Poland, namely the like-for-like in terms of volume, basket deflation and Easter effect? Second question is regarding your working capital. I noticed some deterioration -- slight deterioration in working capital, probably the cash conversion cycle. Just wanted to understand the rationale or the drivers behind this? And if this is something that we can try to relate with the gross margin expansion? Third, of course, also related with the gross margin. If you think that going forward, can we expect this gross margin expansion to be sustainable in the next quarters? And the fourth question, if I may, if you can give us some more color on the nonrecurrent cost breakdown?

I wish many thanks. I believe that congratulations are really for our operating teams and all our banners. So in terms of the breakdown effect, I don't know if it's for the first half for the second quarter. I think that -- okay, okay. So in terms of the food or basket food deflation, we operated with around 6% deflation. And so in terms of volumes, it increased slightly more than 4% as we had a negative like-for-like of 1.6% in the quarter. The calendar effect, of course, this is a little bit tricky, but we estimate to be around 1 or so slightly negative around 1% to at least 1% or I'll later than that. On the working capital, so part, of course, is due to -- if we look at the whole period, if we look at just the whole period is really the fact that we ended last year with a very good performance business, and that, of course, we have to pay for the trade payables at least for the first half. When we compare just the second quarter, One has to do, of course, with the dynamics of sales and the dynamics of the market with deflation, as we mentioned. So if the level of growth in sales is lower, and particularly, we have the Easter effect also. So part of the receivables of Easter were in the first quarter, not in the second quarter, and of course, operating particularly in Biedronka, with a high display that affects, of course, the dynamic, of course, because in the quarter, the growth was slightly negative. And of course, even the trade payables, the level does not -- is not the same when we are in deflation, also from the supply side part. It's not we have a slightly more days of sales in terms of stock, but that is -- it has to do with the dynamic of the business. We have 1 DC more. We have more stores that opened by -- at the end of the quarter. So this may be just a temporary situation. It did not happen any compensation or in terms of the trade payables because even the trade payables, I believe, probably Claudia can give you that color later. But I believe it didn't deteriorate. And so despite some of the pressures in terms of days of sales. So which means that there was no compensation in terms of gross margin. The gross margin was really driven, which was your second question. Third question was really driven by the mix. And of course, as I said, as also the part of the suppliers are operating in deflation in terms of percentage this translates also in the prices or we don't -- we see also cost deflation in what the cost of goods sold is concerned. And the rest, as I said, is mix. If this is sustainable. I think that part of this will be, but it will also depend again on the consumer demand. and on the competition moves. So we will want, as I mentioned, to be -- to continue to be the price leader in Poland to provide really the best opportunities and to give all the reasons for the consumer to continue to visit store and prefer the Biedronka stores. So this may, of course, imply a different dynamic and a different progression. As I also mentioned, we have a soft comp with Easter effect. But -- so it's -- at this point, I cannot say, but I think that overall, as gross margin increased in all the banners effects, in all our banners and particularly due to the mix and to the -- as I said to the market dynamic, I think this is a good performance. And in principle, part of it will be able to keep for the second half of the year. On the non-retirement, so I -- now we are a little bit careful and even insightful, this is not really just nonrecurrent. Unfortunately, as I mentioned earlier, here, we have to look something that is even decided from the prior year results, which is the [indiscernible] Foundation contribution. It's a decision of the shareholders at the AGM, but it has to be booked through the P&L. And so it doesn't depend or it doesn't affect the performance of the different panels, we are putting here in what we call the other costs and losses. So these are nonrecurrent or things that can introduce some volatility in the performance, but those are not directly linked to the performance of the company and can being booked at this heading. So you have the EUR 40 million of the foundation, which, of course, will be a cash item. Then you have some write-offs due to the remodeling of stores. that we prefer not to keep it in the invested capital because the stores were totally refurbished, and that's the way we think we should do. It's a noncash item. And probably, I think it was around EUR 8 million or EUR 10 million. And then I believe this will be in our first half annual report details -- but then the other is, of course, the litigation. So we do provisions, although we do not disclose exactly to which cases because it has to do with our own position, but I think it was around EUR 4 million and then we have some indemnities and slight other donations that we may give on a discretionary basis, but it's basically that.

Okay. Can I just add an additional question on the gross margin. If I'm not mistaken, in the fourth quarter last year, you had a positive impact from a reversal of the provision related with inventories. Can we assume or should we assume that in the fourth quarter of this year, we will see a reversal. I mean, 30 basis points, around 30 basis points drop in gross margin of else equal? Or we should think differently regarding the gross margin for the fourth quarter bearing in mind the impact that you had in the fourth quarter of 2025?

Thanks, Luis. Absolutely right. Yes, there was this effect. I don't think it can be direct because, of course, I think that not all will be equal, but it's true that, of course, we will have some effect from that -- from the comps because, of course, we will not be expecting to be adjusting that, which was, as we mentioned, an accounting effect. Of course, this will all depend on how even the Christmas season will go. It's true that, for instance, be don't operated already in deflation in December last year. So it may happen that, of course, different -- there are a lot of moving parts also that may be affecting the gross margin. and that includes also the competition, et cetera, as I mentioned. But the rest, we should expect a little bit of pressure going to the comps because of this accounting adjustment, yes.

And now we're going to take our next question and the question comes from the line of Robert Joyce from BNP Pariba.

I'll do 1 by one, if that's all right. Just trying to understand a bit more specifics on the numbers. I mean as we're seeing it, are we expecting to be drone like-for-like to be negative now in the second half of the year, probably the third quarter, I'm guessing, what do you think on that?

Robert, I will ask you if you could -- everybody is doing the questions in batches. So if you don't mind, I would prefer not to be going back and forth with the questions. Can you put the whole back to questions, and I will answer each 1 of them.