X5 Retail Group N.V. (FIVE) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the X5 Q1 2020 Financial Results Conference Call. [Operator Instructions] I must advise you that this conference is recorded today. And I will now like to hand the conference over to your speaker today, Head of Corporate Finance and IR, Natalia Zagvozdina. Please go ahead, madam.

Thank you, operator. Good morning, good afternoon, ladies and gentlemen. Welcome to X5 Retail Group conference call dedicated to our first quarter 2020 financial results released this morning. As we proceed with reporting on the 2 standards, you'll find IFRS 16 as well as IAS 17 numbers in our release. I'd like to remind you that some of the information announced during this call may contain projections and forward-looking statements regarding future events or future financial performance of X5, so please refer to Page 8 of our results release for a full and formal disclaimer with regards to such statements. We disclosed the press release as well as financial statements this morning. You can find them now on our website in the Investor Relations section. Without any further delay, let me pass the floor to X5's CEO, Igor Shekhterman.

Thank you, Natalia. Good morning and good afternoon, ladies and gentlemen. Thank you for joining us today for our call. I hope that you and family and friends are safe and sound. I would like to begin with an update on X5 operations during the last few months and how we are responding to the COVID-19 situation. After that, our CFO, Svetlana Demyashkevich, will provide more detail about our results and give some color on year-to-date trading and change in Europe in our investment program. Following our presentation, we'll be happy to take your questions. Let me start with a brief overview of new regulatory requirements and our key areas of focus during the COVID-19 situation. At X5, we are working hard to ensure that our business continues to successfully fulfill its critical role for society while also protecting our employees and customers, especially those who are potentially more vulnerable of the effect of this virus. Number of new COVID cases in Russia continues to increase, and official estimate suggests that it may peak in late April or earlier May. A nationwide self-isolation requirement was introduced in Russia on March 28 and it will last until April 30. So this is widely expected to be extended. Moscow was placed under full lockdown on April 13. On the back of this event, we had to deal with stock-up buying by our customers in the last 2 weeks of March. After the initial stock-up period, we began to see less frequent customer visit to store, but a much larger basket. This was the result of consumers' response as the self-isolation regime proceeds in April. We also see that our proximity stores are demonstrating higher like-for-like revenue in April, benefiting from their convenient location. Our express delivery and online operation has seen a record-high demand. I will talk about this in more detail later. The current restriction on people mobility aim to prevent the spread of the virus. At the same time, grocery stores and pharmacy across the country remain open, along with health care institution and few other government sectors. On April 15, Moscow and a number of other regions introduced a digital pass system for residents and private cars. However, visiting a local grocery store or pharmacy to buy food doesn't require a pass. The new system requires a company, including X5, to issue special passes for the lockdown period for store personnel, driver as well as the key office workers. We have had no problems getting these required passes for our employees as we were prepared in advance. Given the recent development and new regulations, we have established working group assess key operating risk areas and developed emergency plans for our operation to provide sustainable service to our customers. We are in a constant and constructive dialogue with the authority, thanks to the active participation of the Ministry of Industrial and Trade of Russia as well as the Moscow Department of Trade. We have been able to develop a set of measure -- measures designed to help retailers adapt to the challenges. We have jointly set up a system of emergency [ situations ] with state bodies at the federal and regional levels. COVID has enabled us to quickly address emerging problems and find solutions. Today, the key priority of X5 is to provide a safe environment for our customers and employees, expand our digital solutions and maintain the efficient operation of our supply chain. These 3 elements will ensure that our customers have access to fresh food and essentials. Our operational personnel are on the front line for delivering and regular supply of food to more than 70 million people in Russia. I would like to take this opportunity to once again publicly thank our store and logistics workers who have kept -- were hard at work and dedication during the lockdown period. Now I would like to say a few words about the changes in customer behavior, what we have seen since the start of the coronavirus outbreak. Since March, we have seen an increase in demand, with sales peaking on March 16, 17. Sales of higher-demand products such as buckwheat, cereals and canned meat over the course of the week exceeded normal levels by a dozen of times but later normalized. In the end of March, we noticed decreasing traffic both in Moscow and in the regions across all formats. Our customers started to prioritize safety where reach to store became less frequent, but value per basket increased well above the traffic decline. We believe this is because food retailer currently cover additional demands previously satisfied by the HoReCa sector. This would also explain why our customers are now buying the wider range of scales. I want to provide some additional color on the structure of demand. To date, we have seen no decline in the sale of fresh products, fruit and vegetables in our sales. The consumer continue to buy this product from us, and we are happy to supply them with the fresh and healthy products. We have also seen no trading down by our customers at it. After the introduction of self-isolation restrictions in Moscow from March 28 and full lockdown from April 13, we saw a deeper decline in customer traffic in our supermarket and hypermarket located in shopping centers. At the same time, like-for-like performance at our Pyaterochka proximity format is very positive. Now I will say a few words about the results of our digital and online services. Today, everything related to digital transformation is becoming even more relevant. Thanks to the digital transformation project that X5 implemented last year, 97% of our office personnel are already working remotely. As customers look for more digital solution during the pandemic, X5 is able to support them with the delivery service. We see significant opportunities for the growth of our online supermarket Perekrestok.ru and express delivery from Pyaterochka and Perekrestok store, which have seen significant growth in the last 2 months. We plan to develop this service more aggressively, and we are considering a reallocation of investment from stock opening and renovation to growing our digital business in 2020. I want to remind you that X5 has 2 different delivery proposition for our customers: fresh and stock-up option. Perekrestok.ru aims to fulfill the stock-up mission. During normal time, we delivered orders in 1 or 2 days, but this is currently at 4, 5 days due to the increase in demand. Our existing infrastructure was overloaded, tenfold increase in demand. Each of the online orders placed in March-April is 1.3x bigger compared with the normal basket in terms of the number of SKUs, which means more time is required to assemble each order and more space is needed in the delivery truck. Given these change parameters, the number of online supermarket order fulfilled basically has declined. But turnover of our Perekrestok.ru duration nevertheless increased by nearly 2.5x year-on-year in recent weeks. The average [indiscernible] has also risen to around RUB 4,500 in the first 3 weeks of April compared to result of RUB 800 in February. To meet the strong demand, provide food product deliveries, we launched a new dark store in Moscow on April 10, almost 2 months ahead of schedule. Currently, it is ramping up and delivering around 100 orders per day. Once it reaches full capacity, it will increase number of orders we can fulfill in Moscow by 40% to more than 10,000 orders per day in the current situation with increased average basket. In term of normalized demand, our combined online supermarket infrastructure in Moscow and St. Petersburg, we will be able to fulfill over the 16,000 orders per day. In June, we will start Perekrestok's online sales in Nizhny Novgorod where we will be using former Karusel hypermarket as a dark store. To support growing demand, we have increased the number of pickups and couriers as well as our own transport fleet by 20% and also partnered with 5 transportation companies. Accelerated training has been launched for all new employees as they assess effectiveness of dark store depends on how efficiently the order pickup work. The online supermarket team now continue to work primarily on expanding capacity. At the end of March 2020, we saw unit economy improving at Perekrestok.ru, and we have stopped all digital marketing as it currently has no impact given current capacity limitation. We now expect the online supermarket financial performance to be better than budgeted for 2020, and we have full confidence that the business will be profitable after 3 years of operations. Another increase in the popular service is express delivery from store. Today, the service is available from 151 Pyaterochka stores in Moscow and Moscow region, covering 100% in the city area inside the Moscow Ring Road. Currently, the number of order is almost 12,000 per day compared to 600 order in February. The average check is around RUB 2,000. The service is also available in Kazan from 9 stores. We plan to add to St. Petersburg in May. The current demand for this service is exceeding our initial forecast. If we see this demand as sustainable after lockdown is lifted, the number of stores with an express delivery option may be increase to 500 location in up to 10 cities by the end of the current year, compared with the original plan of 200 stores in 6 cities. We also piloted a dark store model based on Pyaterochka stores in Moscow for our express delivery operations. We are very pleased with the results, to date 5, that saw operation in Moscow. The first one we opened is now delivering up to 400 orders per day. By the end of the May, we plan to add 5 more dark stores. The sales from these dark stores are several times higher compared to the sales previously generated by off-line store that we allocated in the premises. CapEx to open a new dark store for express delivery compared with a regular store is several times low, which presents increasing opportunity from the capital allocation perspective. In addition to the development of express delivery based on Pyaterochka, we are currently piloting the same service to Perekrestok supermarket at an accelerated pace, which is called Perekrestok [ Bistra ]. A pilot was launched last week in 9 stores in Moscow. By the end of May, the service will cover the entire Moscow City area and will expand to other cities by the end of 2020. At present, our digital business, Perekrestok.ru and Pyaterochka express delivery are handling a combined more than 20,000 orders per day in Moscow. To conclude, I will say a few words about our initiative in the social area. The ports and local communities in which we operate has always been a key part of our sustainable development strategy. Our Smart Kitchen is the -- making 500 ready meals every day to doctors and medical staff in 4 Moscow hospitals. We also donated 3,500 food sets for doctors of the Research Institute of Emergency Medicine and several family for the Basket of Kindness project. Every week, we deliver food sets to the doctors and medical staff of 9 Moscow laboratory that conduct research on coronavirus infection. We also offer ambulance crew member free snack kits on the daily basis at our Karusel hypermarkets. We also continue food donation to elder people and working it through our Basket of Kindness program. Since March, we have already provided 709,000 food sets of people in it in Tula, Moscow region and St. Petersburg. We provide additional discounts and help citizens in the current situation. The first hour of trading at our store has been prioritized for the use of older people who are potentially most dependent from the viral virus. We also offer free delivery services for Pechenga in Moscow via our Pyaterochka express delivery. The format was launched export line for Pechenga where we can leave a request for a set of products, which is preceded by the [ bonders ]. Perekrestok also launched a special supply for Pechenga in Moscow and St. Petersburg. Our initiatives also includes trading with a 0 retail markup for a number of social important goods, which was necessary to support our income groups of customers. This is our joint initiative with Magnit, which was later supported by other O'KEY retail players. In this situation, we decided to do this together, recognizing our responsibility as a sector leader. To conclude, I would like to say that I'm proud of our staff who are on the frontline to service our customer when they need us most. At worst, efforts are truly at peril. Now I would like to hand over to X5's Chief Financial Officer, Svetlana Demyashkevich. Thank you for your attention.

Thank you, Igor. Good morning and good afternoon, ladies and gentlemen. And thank you for joining our call today. Since Igor gave a detailed update on the current situation, I'm not going to give a long introduction. What I would like to do is to briefly go through the market environment and changes in our expectations for 2020 due to coronavirus situation and market changes; provide an overview of our financials, month-to-date results in April; and then move on to a Q&A session. To begin with, let me remind you that X5 [indiscernible] comparison against a very solid first quarter of 2019, but full inflation was on the rise. Our proximity operation started to see the results of the shrinkage-reduction efforts. Our supermarket operations saw a high demand and performing very strongly on the back of the attractive synergy, and when Karusel hypermarkets are not yet undergoing a transformation. During 2019, as you remember, we continued to invest in prices to sustain positive price perception among our loyal and our new customers, which helped us to continue to generate positive like-for-like traffic in the first quarter of this year. However, the effect of operational changes at the Pyaterochka level that made shrinkage reduction possible during last year have now stabilized, and this factor did enhance our margins in first quarter also. Furthermore, food inflation for the entire retail industry in first quarter 2020 before the impact of COVID-19 and the fixed factors in March continued on a downward trend. This has made a year-on-year comparisons tougher for the entire sector. Having said that, I want to highlight that X5 delivered very good growth and solid profitability in the quarter, benefiting from good like-for-like customer inflows job in such stores and supermarkets, thanks to improvements in labor productivity on the back of various matters that incentivized and engaged our personnel, reflecting our focus on product assortment and quality of goods we offer to our customers. We are also satisfied with how the company is performing operationally and financially amid the COVID-19 situation. I will elaborate on this later. I will now say a few words about the external environment in first quarter. Well, first of all, food inflation decelerated further to 2% from 3.5% in the fourth quarter 2019. At the same time, it started to increase in March and reached 2.2% year-on-year after hitting a low of 1.8% in February. Key factors driving the acceleration were our seasonal dynamics and ruble depreciation on the back of low oil prices. Growth in consumer demand accelerated to 3.5% in January-February 2020 from 1.6% in the fourth quarter of 2019. The main factors behind the acceleration were a decline in trend in food inflation and an increase in wages as well as calendar effect in February due to Russia having 2 more days of -- in 2019. Demand in March was abnormal, starting from middle of March, March 15, driven first by expectations and later by introduction of lockdowns. Demand remained high in April, with a clear trend towards less frequent store visits but a larger basket. Consumer sentiment was improving in first quarter from minus 13% in fourth quarter to minus 11% in the beginning of the year. We think this indicator, at the same time, does not reflect the change in sentiment in the second half of March related to the recent situation. Moving on to changes in our expectations for 2020. Internally, we have developed 2 main scenarios regarding inflation, nominal disposable income growth, oil price and ruble exchange rate, in order to assess the potential impact on our operations and our financial results forecast in 2020. We are currently going with base-case scenario, which I will discuss in some detail. Under this scenario, food inflation is 3%, 4% for 2020, taking into account changes in the oil price and ruble exchange rates. Under our base-case scenario, we are not expecting significant changes in revenue growth for the full year compared with our original budget. But after a strong start of the year, we do not rule out a slight deceleration in the revenue growth in second quarter, citing all customers stockpiling in previous weeks and reflecting a recovery of HoReCa volumes, which currently food retail address together with food delivery services. A general market slowdown in Russia after COVID lockdown may result in lower purchasing power of the population, which may impact overall demand for food as well as lead to trading down by consumers. So far, we have not seen this trend. Actually, we do see quite significant increase in like-for-like costs, improving our business [indiscernible]. If indeed consumers' income will suffer, our Pyaterochka formats will be better positioned compared with supermarkets due to price advantages to consumers. You have seen in our operating results that the COVID-19 situation boosted demand and our sales in March. But we also have to take measures to ensure the safety of customers and our personnel, which requires additional expenses on these infections and logistics. In line with other federal retailers, from mid-March, we introduced temporary employee bonuses in stores and in supply chain, which will be paid during the coronavirus lockdown, which is currently due to end of April. At the same time, we see positive operating leverage effect, which helped us to offset higher operating costs. We have started negotiations to receive better terms with our landlords, especially for stores with significantly decreased traffic, for example, in shopping centers and our format. And business units are fully focused on minimizing operational expenses wherever it is possible without sacrificing the safety and quality of our operations. As you can imagine, it is currently difficult to estimate the potential impact of the coronavirus on absolute annual EBITDA as the situation is changing very rapidly. However, our internal targets for EBITDA profitability for the year are, at this time, unchanged. I will comment on our investment program for the year a bit later in my speech. Turning to X5 financial performance during the quarter. Revenue increased by 15.6% on the back of positive like-for-like sales of 5.7% and 11% rise in selling space. Our store openings as well as refurbishments were implemented in line with our original plans. X5's like-for-like sales growth accelerated quarter-on-quarter to 5.7%. Like-for-like traffic and basket growth accelerated in first quarter to 3.7% and 1.9% year-on-year, respectively. In January-February, like-for-like traffic was the main driver of like-for-like sales growth. While in March, like-for-like basket became the main driver due to stocking up by consumers amid the COVID-19 situation. Looking at margins in the first quarter. Well, first of all, our gross profit margin decreased by 43 basis points to 24.3%. The margin decrease was mainly driven by the difference in food inflation levels when you compare first quarter 2020 and first quarter 2019, continued targeted price investments in January and February as well as high logistics costs due to measures taken to ensure uninterrupted supply chain durations, while the tax in employees helped as the impact of the coronavirus on them have caused significant spikes in demand. Our share of promo remained at around 35% as planned and was unaffected by the COVID-19 situation. Shrinkage as a percentage of revenue was stable compared with the first quarter of last year. In first quarter 2020, our cash operating expenses decreased by 27 basis points as a percentage of revenue. Our staff costs stabilized as a percentage of revenue, even including additional operating personnel motivation in the second part of March. Because during 2018 and '19, we managed to bring average wages for in-store personnel in line with market average benchmarks. And the company is now enjoying a fairly low personnel turnover and also higher labor productivity. The share of lease expenses and utilities costs in revenue decreased, reflecting positive operating leverage effect and the positive weather factors during this year. Our negotiations with landlords have not yet impacted our rental rates in March. We do expect these results -- to see these results starting from April. Adjusted EBITDA in first quarter increased by 11.9% year-on-year. Our adjusted EBITDA margin decreased by 23 basis points to a very healthy, I would say, 7%, reflecting gross margin performance and helped by positive operating leverage effect. In first quarter, we continued to accrue LTI expenses covering the new LTI program. LTI and share-based payment expenses totaled RUB 495 million. Let me remind you that the LTI targets are, first of all, maintaining market leadership by revenue. And our second target is achieving leadership in terms of EV/EBITDA multiple relative to peers. Growth will continue in approximately same quarterly amount during 2020 if both targets are achieved. Depreciation, amortization and impairment costs increased as a percentage of revenue by 32 basis points versus the same period last year to 3.4%. This was mainly due to revenue growth outpacing the growth of gross book value of assets as well as impairment and accelerated depreciation of noncurrent assets as we continued to transfer Karusel stores to Perekrestok, in line with our transformation plan. Net finance costs decreased by 6.1% year-on-year as our weighted average effective interest rate decreased on the back of key policy rate dynamics in Russia as well as actions taken by X5 to minimize interest expenses through debt portfolio maturity and combination of bank debt and bond issuances. We currently see no issues with assessing ruble liquidity, either from banks or on the domestic bond market. Today, the regulator reduced key rate by 50 basis points to 5.5%, which also will help with further [ borrowing ] cost for us. In the first quarter, the company net profit adjusted for effect of Karusel transformation of RUB 8.6 billion, which represents 1.8% net profit margin. The small year-on-year decline in adjusted net profit, apart from gross margin effect, is mostly related to RUB 1 billion FX revaluation impact due to the significant FX weakness and volatility in March. Turning to our balance sheet. Our [ better ] working capital and operating cash flow generation enabled us to reduce our short-term debt and to reduce net debt-to-EBITDA to 1.5x. Going forward, we will aim to maintain this ratio below 1.8x. I want to just say a few more words on cash flow. Our net cash flow generated from operating activities in the first quarter was RUB 40 billion, which is RUB 22.8 billion higher than a year ago. Growth of business, healthy profitability levels and better working capital were the main contributing factors. The change in working capital in the first quarter was a positive RUB 15.1 billion. This was mainly driven by smaller decrease in accounts payable and inventory due to higher inventory turnover in March. The changes in our first quarter 2020 inventory reflects our ongoing efforts to improve inventory turnover across all formats as well as higher demand and faster product turnover in March due to the COVID-19 situation. The changes in accounts payable reflect several factors. One factor is the growing share of fresh in our assortment, which implies faster payment terms as stipulated by the Russian retail loan. This trend is structural and very gradual. Another factor is the COVID-19-related increase in our buying activity in February and March in order to ensure sufficient stocks of high-demand goods had positive effect on our payables during the fourth quarter. Let me say a few words about our CapEx. X5 total capital expenditure in first quarter amounted to RUB 17.5 billion. Approximately 44% of the quarterly CapEx went to expansion of our store base. We opened almost a similar number of stores as in first quarter 2019. The remaining CapEx included refurbishments of 261 stores, logistics, IT, maintenance and other investments. Let me update you on our CapEx program for 2020. Initially, we planned to open around 2,000 gross proximity stores and supermarkets in 2020. In addition, we plan to refurbish around 1,300 Pyaterochka stores and about 30 Perekrestok supermarkets. Looking at the coronavirus situation, its effects and broad consequences for the economy and consumer demand, we now plan to open around 20% less stores than originally planned. We have also suspended the refurbishments to new concept outside of Moscow and St. Petersburg. The number of refurbishments will decrease by around 40% from what was initially planned. At the same time, we will continue investments into digital transformation and the development of digital services, which is particularly relevant to date. Igor spoke about this earlier on. As a result, we expect a reduction in CapEx from the originally planned amount. CapEx in 2020 should not exceed CapEx in 2019. Finally, a few words from our month-to-date results. Demand in April remains elevated with a trend towards less frequent store visits but a larger shopping basket. Net retail sales, excluding the IT, grew by 17.5% year-on-year in the first 23 days of April. Like-for-like sales growth was at 8.1%. This concludes my brief presentation of the results. Thank you for the attention, and I will be happy to answer your questions.

Thank you very much, Svetlana. And operator, we could start the Q&A. [Operator Instructions]

[Operator Instructions] And the first question comes from the line of Nikolay Kovalev.

I have 2 questions. First, the presentation was quite detailed. The first one is on the refurbishment program. So we already saw quite a significant amount of capital expenditures in the first quarter, almost like RUB 6 billion. So I was wondering, can you help us understand to what level you lowered the average CapEx for the new concept? And can you share with us what are they bringing the like-for-like results for the refurbished stores, which are almost like, I believe, 600 already? So results versus CapEx would be quite helpful for us to understand. And my second question is on the different provisions that we saw in the last couple of quarters. It looks like the first quarter of 2020 is less impacted by the result, but can you also help us to understand if you anticipate any further provisions for part of sale or taxes in the upcoming quarters?

Thank you for your questions. I will start with our new concept development. We're actually quite happy with the development and with the performance of the stores in the new concept. And of course, it's harder to judge by March and April, where we have elevated demand in all our stores. But I think that statistics were quite representative in January and February, where we already saw around 10% additional like-for-like traffic -- like-for-like sales as a result of this new concept refurbishment in the existing stores. So it's actually in line with our expectations, in line with our budgets. And that's why before the development of COVID-19 situation, we were planning to proceed with our refurbishment program and opening new stores in the new concept. But as I commented, understanding that recent situation will probably affect the income of the population and overall demand in our stores, we think that we should be more careful with the refurbishments. And first of all, we want to focus only on Moscow and St. Pete and to decrease the number of refurbishments in other regions of Russia. In terms of CapEx per store after this new concept, actually, our aim is to keep CapEx to store at the level very close to the CapEx we had previously for our stores, maybe just slightly higher, around 5%. So we do not expect significant impact on our CapEx numbers in that respect. And another question you had on provisions for Karusel and for tax. So regarding Karusel, actually, it will depend on the pace of transfers of Karusel stores into supermarket format, also on the pace of closings of the stores and on individual decisions and negotiations we can have with the landlords in these respective opportunities, which we are closing. And also it will depend on the pace of reduction of personnel in these liquidated stores, actual stores. So yes, we do expect that we will see some results further in next quarters of 2020 and 2021. We do not expect them to be higher than what you saw as initial effect of the transformation last year, but it's hard to exactly estimate them. As I said, we have a lot of individual factors affecting each particular accrual at each particular quarter. So in terms of tax, overall provision -- tax provision for 2019 was for both tax restructuring and tax resulted from transformation of Karusel was around RUB 5 billion. Yes, it's material amount. But at the same time, it's not, of course, critical for our P&L. And as for Karusel, as I commented, I wouldn't expect significant demands in the future in terms of tax. But as I said, we will accrue probably some of the provisions related to just operational transfers, additional impairment of the stores, et cetera.

Next question comes from the line of Kirill Panarin.

I've got 2, please. So firstly, on your gross margin. I wonder to what extent was it helped by changes in sales mix towards dry foods in Q1? So what are the trends in the first quarter gross margin if you adjust it for one-offs, such as different sales mix or higher logistics costs? And what are your thoughts on the outlook? That's the first question.

Well, as I said during the call, the biggest impact on gross margin was on changing cost of logistics due to higher demand and more pressure on our supply chain in March. And we already see that we have less pressure now in April, where the demand normalized. So as I said, for 2020, we do not expect the -- any adverse changes from our initial budgets, both in terms of total EBITDA margin or gross margin. So overall, we see that this negative effect on EBITDA margin resulted from higher logistics costs, from additional personnel costs like bonuses to employees who work under this pressure of coronavirus situation and also some additional expenses that we are making to ensure the safety of our employees and our customers. All these costs are, at the moment, balanced by positive operational leverage and higher revenue that we are receiving. And we do have, I would say, the same expectations for the year going forward.

Okay. Great. And secondly, it would be great to hear your thoughts on competitive dynamics. Do you see smaller players also benefiting now from higher demand? Or do you see them struggling for whatever reasons? And do you think that market exits might accelerate over the next 6 to 12 months?

We do see, of course, that proximity format is benefiting the most among all our segments. And of course, supermarkets and hypermarkets [indiscernible] situated in shopping malls are suffering less traffic. And we even had to close several of our supermarkets located in the shopping centers. In terms of traditional retail, usually, during the crisis, as we saw it in 2014, '15 and before that, in 2008, of course, crisis is the time for consolidation of the market. And large players and leaders of the market benefit in this situation due to high efficiency, higher purchasing power, high levels of digitalization, et cetera, et cetera.

Next question comes from the line of Elena Jouronova.

I have a few questions as well. So I wonder, firstly, what is the latest thinking in the company about a more substantial change of strategy and your capital allocation from the retail stores to dark stores, i.e., spending less CapEx on off-line and more on online? And this question is not just about 2020 but more conceptually about how the company is currently thinking about the future.

Thank you for the question. I think the current situation definitely move us to the -- reconsider our strategy because we are absolutely sure that it will be change of the consumer behavior. And now we are in a step of developing of our strategy and changing our plans for the next 2, 3 years. And we will discuss our new strategy with the Board in the beginning of July, and I'm sure we will present our new strategy in Investor Day in the end of October. But definitely, regarding the changing of the behavior will be the new way of online delivery. And so we see that now practically most of the competitor who have online delivery growing quite quickly. And we understand that it will be not just for this time, that people will like these services, and we are sure that the change in customer behavior will be also change of demand for this service for the longer time, and it will change the economic. Even now we see that unit economy is changing positively for us, and we see a big potential demand for these services. Buying food through remote channels is becoming the mainstream. It's absolutely understandable for us, and we have accelerated the development of our express delivery infrastructure. At Pyaterochka, it's called -- the Pyaterochka it's called [ Bistra ]. If the increased demand for the service exceeds our current expectation, we could increase the number of stores with express delivery service to 500 in 10 Russian regions. And thank you for -- thanks to our infrastructure development last year, now we have very good infrastructure, IT model, and we can quickly roll out. For instance, in March, we include in online delivery per week, 10 new stores. Now we can include even more store every week.

And if I may ask a follow up. I actually have no doubt about very strong competitive advantages that X5 has in terms of launching online deep dark store cut to offer express. But there is one element which currently, in my opinion, you lack, and that's the last mile. And that's capacity -- that of courier that will allow you to achieve much faster click-to-consume or click-to-eat time, whatever is the right way to call it. So how are you posing for the last mile currently? Who is your logistics partner? And most importantly, what kind of investment do you think you need in order to match the service that services like LavkaLavka and Samokat are able to offer?

Well, first of all, we have 2 models, which are quite different in terms of their logistics. For Perekrestok.ru, our online supermarket, we have dark stores and our own delivery with our own couriers and trucks. And actually, yes, we do invest more this year. And we'll rechannel some of the CapEx that we planned in terms of faster openings of off-line stores. Part of this CapEx will be rechanneled to faster open the new dark stores for Perekrestok online and to buy more trucks to ensure that we're able to meet this elevated demand from our customers. In terms of express delivery which we have for Pyaterochka and for Perekrestok, they are, so far we track -- we outsource several companies which provide couriers. And the picking is done by employees of Pyaterochka or Perekrestok, depending on the format. So it's a hybrid model at the moment. It doesn't need any additional CapEx, as you can see, on the OpEx, which is just included a unit economy. And what we see already is that, of course, with high demand and higher density and higher check, the unit economy improves both for express delivery and for Perekrestok.ru.

And it's also one of the important expenses in online delivery is digital marketing. Particularly now, we excluded it from our P&L because now we have -- no, no, we do it without any digital marketing.

Yes, of course. At the moment, we are able to attract new customers without any additional marketing spend. And it will allow us, I think, even after the end of lockdown, to keep this new inflow of customers who've already tried us and will be happy with our service.

And regarding the CapEx, X5's dark store we transformed from the previous Pyaterochka, we do it practically without any CapEx. We just took some Pyaterochka that were not so good performing and transform it to a dark store.

That's the third, I would say, format that also we are exploring. It's in the pilot mode yet. We just took some -- several of Pyaterochkas, which were underperforming and transformed them into dark stores. We'll see what model of express delivery ensures higher-return investments and higher speed of growth. And probably, we'll proceed with some combination of these models and our strategy going forward.

Thanks. I think one of our benefit to compare the digital competitors like Samokat and like LavkaLavka, we have 2x more average here because we have more number of SKUs.

Yes. Not mentioning the purchasing power, of course, for all our food categories, which is a huge benefit.

And 30% of our customer in express delivery is a new customer.

There are no more questions at this time. Please continue. Oh, we've got another one, if that's okay?