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Jerónimo Martins - 3Q18 sales in line with expectations, EBITDA 1% ahead. Weak LfL sales growth in Poland

31 Oct 2018

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Jerónimo Martins reported yesterday after market close its 3Q18 results. Management will hold today at 9.30am local time a conference call.

Revenues: 3Q18 revenues stood at €4,374mn (+4.8%y/y), in line with consensus expectations. 9M18 revenues reached €12,800mn, +7.3%y/y (or +7.3%y/y in local currency). Biedronka’s total sales rose by 2.6%y/y in 3Q18 to €2,871mn (+3.7%y/y in local currency). In 9M18, Biedronka’s sales increased by 6.5%y/y to €8,632mn (+6.2%y/y in local currency). In Poland, LfL showed a weak performance in 3Q18 (+0.8%), equivalent to a cumulative +3.2% in 9M18, reflecting tough comp., a highly promotional environment as the food retail industry adapts to the Sunday ban, lower food inflation (+2.2% in 3Q18, after +3.2% in 2Q18 and +4.0% in 1Q18), driven by deflation in some commodities and fresh products, deflation in the average basket, and the peak number of Sunday closures over the quarter. According to Jerónimo Martins, the Sunday ban had a particularly negative effect in 3Q18 with 8 fewer trading days, impacting LfL sales by around 2pp.

In Portugal, Pingo Doce’s LfL sales ex-fuel performance reached to +4.6% in 3Q18 (+3.8% in 9M18), after +3.4% in 1H18. Food inflation remained low in Portugal: 1.0% in 3Q18, after 1.0% in 2Q18 and 0.7% in 1Q18, as the food retail industry remains highly promotional despite growth in consumer demand. Total sales reached €1,011mn in 3Q18, +6.0%y/y (+5.1%y/y in 9M18). Recheio showed LfL sales up by 4.9% in 3Q18, following +2.6% in the previous quarter (+3.7% in 9M18). Total sales rose by +3.6%y/y in 3Q18 to €281mn (+3.5%y/y in 9M18 to €739mn).

EBITDA: EBITDA rose by 3.8%y/y in 3Q18 to €263mn (vs. consensus €261mn), or +6.0%y/y in 9M18 to €709mn. EBITDA margin in Poland stood at 7.2% in 9M18, in line with the previous year, despite the highly competitive environment and despite wage pressures and operational changes to adapt to the Sunday ban.

Pingo Doce and Recheio registered an EBITDA margin of 5.0% in 9M18 (vs. 5.2% in 9M17), reflecting the wage increases implemented throughout 4Q17, with the impact in 3Q18 offset by the strong sales delivery.

Net Debt stood at €250mn as of the end of 3Q18 (vs. €367mn in June 2018). FCF in 3Q18 reached €121mn (-€16mn in 9M18).

Ara and Hebe recorded losses of €20mn at the EBITDA level in 3Q18 (vs. losses of €21mn in 2Q18), or €65mn in 9M18 (vs. €67mn in 9M17).

Outlook: In Poland, Biedronka will continue to adjust to changes in the weekly sales pattern caused by the Sunday ban. The store opening plan will continue in 4Q18 with the addition of 40 to 50 new locations. In Colombia, Ara will continue to execute its expansion plan with the opening of around 65 stores in 4Q18. Jerónimo Martins reiterated its previous guidance for Ara and Hebe’s combined losses at the EBITDA level slightly lower than in 2017, at constant exchange rates. Guidance was also reiterated for capex to reach €700-750mn in FY18.

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