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Lenta IPJSC (LNTA;LENT)
Press Release | St. Petersburg | 25 July 2022
LENTA REPORTS TOTAL SALES GROWTH OF 20.3% AND ONLINE SALES GROWTH OF 159.0% IN H1 2022
25 July 2022, St. Petersburg, Russia: Lenta IPJSC (LSE: LNTA, MOEX: LENT), one of the largest multi-format retail chains in Russia, today announces its operational results and key financial results for the second quarter and the first six months of 2022 as well as its auditor-reviewed IFRS financial results for the first six months of 2022.
H1 2022 Highlights1,2
Vladimir Sorokin, Chief Executive Officer, commented on Q2 2022 results:
“In Q2 2022, we continued adapting Lenta’s business to the new environment to ensure that we were able to fulfill our primary objective – providing customers with quality food products and basic essentials–without interruption.
Thanks to the concerted efforts of our personnel, we dealt with emerging challenges while maintaining the sustainability and viability of Lenta’s business. By the end of Q2 2022, the quality of our relations with suppliers was closer to where it was in January; in addition, we built new supply chains and established a process for settlements with foreign counterparties. Moreover, we managed to put new products on our stores’ shelves and to expand Lenta’s supplier base considerably. In the first half of 2022, we added 314 local producers to our suppliers.
In Q2 2022, we completed the integration of Billa: all of the retailer’s stores are already operating under the Lenta brand, and they have been fully integrated into our platforms, product matrixes and IT solutions. In the second half of 2022, we will continue to integrate the Semya chain and the online business Utkonos.
A few words about our formats. In Q2 2022, like-for-like sales at our hypermarkets increased by 2.5%. At the moment, the priority for us is to develop an offer that will bring traffic back to our stores, including by developing our product mix and promotions as well as expanding our own private labels. In terms of our small-format stores, we note the positive dynamics and the return on our efforts to develop them. Our Q2 2022 results are clear evidence of this: we achieved 2.9% growth in LFL sales, and we were able to stabilize inventories, which enabled us to improve our EBITDA margin. Our online business continues to increase its share in Lenta’s total sales and is showing strong results. Online sales in Q2 2022 increased by 135%.
Responding to customer requests remains our top priority. We are undertaking comprehensive efforts to ensure that we can update our product mix and pricing quickly in response to changing external market conditions. The company’s operating and financial results demonstrate that we are successfully adapting and quickly learning to work in the new environment.”
Q2 & H1 2022 OPERATING RESULTS, y-o-y
Stores and Selling Space
For Q2 2022 monthly operating results, please refer to Appendix 1
3. Including Utkonos results from the date of consolidation (1 February 2022)
4. Includes only Utkonos Retail Sales (B2C)
5. Wholesales includes Utkonos wholesales (B2B)
6. Lenta Online includes Click & Collect
7. Includes both Utkonos retail sales (B2C) and wholesales (B2B)
Q2 2022 OPERATING RESULTS
In Q2 2022, Total Sales increased by 17.4% to RUB 130.1 billion. Lenta’s Retail Sales in Q2 2022 increased by 18.1% to RUB 128.7 billion, compared to RUB 109.0 billion in Q2 2021, driven by 2.6% LFL Retail Sales growth and 16.3% Total Selling Space expansion, both organically and inorganically. Overall Sales Density in Q2 2022 improved by 3.5% year-over-year.
Following the abnormal retail sales hike in March 2022, when customers stockpiled household chemicals, hygiene products, dry food, and other durables, Lenta faced a traffic decline in Q2 2022. Cold weather in May and June also affected sales of summer non-food goods.
In Q2 2022, the total Number of Tickets increased by 25.2% thanks to the above-mentioned expansion, while the Average Ticket size decreased by 5.7% primarily due to the increasing share of small-format stores’ sales in total Retail Sales.
Wholesale Sales, which now includes Utkonos B2B sales from the date of consolidation, represented 1.0% of Total Sales and decreased by 22.7% compared to the corresponding period of the previous year.
In H1 2022, the Average Ticket was the driver of LFL Sales growth. LFL Sales growth decelerated to 2.6% in Q2 2022. Total Retail LFL Traffic stood at a negative 5.5%. The Total Retail LFL Average Ticket increased by 8.6%, offsetting negative LFL Traffic.
In Q2 2022, Lenta continued to improve its loyalty program and actively worked on promo recovery. In Q2 2022, 1.7 million new loyalty cards were activated, with the total number of loyalty cards issued reaching to 23.0 million. Transactions using loyalty cards accounted for 95.9% of total Retail Sales, excluding Utkonos.
Hypermarket Sales represented 79.1% of total Retail Sales in Q2 2022. Hypermarkets delivered 2.4% Sales growth, positive LFL Sales growth of 2.5%, and an increase of 9.2% in the LFL Average Ticket, driven primarily by inflation. Lenta continues to improve the efficiency of in-store operations, which led to a sales density improvement of 5.8% year-over-year.
In Q2 2022, Lenta put on hold a significant number of store openings due to the macroeconomic conditions and market uncertainties. During Q2 2022, 18 new small-format stores were opened. Lenta also closed four underperforming stores to optimize operations, bringing the total number of small-format stores to 555 as of the end of Q2. In the reporting period, small-format stores demonstrated significant year-over-year Sales Growth of 154.5%, primarily driven by acquisitions made in 2021. Small-format stores’ LFL Sales grew by 2.9%, compared to a 0.1% decrease in Q1 2022. The LFL Average Ticket increased by 6.1%, while LFL Traffic stood at a negative 3.0%.
In Q2 2022, Lenta’s Online channel continued to demonstrate very strong sales growth. Total Online Sales including Utkonos sales during the period amounted to RUB 9.6 billion, an increase of 135.4% year-over-year, while Total Online Orders were up 79.9% and amounted to 4.1 million. The Average Ticket for Lenta Online was RUB 2,100, an increase of 15.0% year-over-year. The share of online sales via Partners decreased significantly following Partners’ revision of their approach to the development of their online offering, while there was no significant change in Lenta’s share of sales in Partner services. Lenta Online demonstrated considerable sales growth thanks to increases in the Average Ticket, the size of the customer base and the number of orders. In addition, Lenta Online incorporated technologies for the simultaneous picking and delivery of multiple online orders, which will improve the business’s operational efficiency. In Q2 2022, Online Sales constituted 7.4% of Lenta’s Total Sales, compared to 3.7% in the corresponding period of the previous year.
Q2 & H1 2022 FINANCIAL HIGHLIGHTS, pre–IFRS 16
Key Financial Results, pre–IFRS 16
For Q2 & H1 2022 financial highlights prepared in accordance with IFRS 16, please refer to Appendix 2
Total Sales demonstrated strong growth of 17.4% and amounted to RUB 130.1 billion, compared to RUB 110.8 billion in Q2 2021.
In Q2 2022, Gross Profit (pre–IFRS 16) rose by 24.7% year-over-year to RUB 32.8 billion. Gross Margin improved by 148 bps to 25.2% mainly due to a lower promo share. This growth was offset by an increased shrinkage as a percentage of Total Sales, which resulted from a higher share of new stores in the ramp-up stage.
Gross Profit growth was offset by a Total SG&A increase of 50.1%, leading to an EBITDA (pre–IFRS 16) decrease of 21.2% year-over-year. In Q2 2022, Lenta’s EBITDA Margin stood at 6.5%. EBITDA Margin declined by 321 bps compared to the previous year, primarily due to the growth of SG&A as a percentage of Total Sales, which resulted from an increased share of stores in the ramp-up stage, the growing share of Lenta’s own online and the Utkonos acquisition.
Selling, General, and Administrative (SG&A) expenses, pre–IFRS 16
For Q2 & H1 2022 SG&A expenses in accordance with IFRS 16, please refer to Appendix 2
In Q2 2022, Total Selling, General, and Administrative expenses (pre–IFRS 16) increased by 50.1% year-over-year to RUB 30.8 billion. SG&A as a percentage of Total Sales increased by 516 bps to 23.7%. This growth was mainly driven by higher payroll expenses, higher lease expenses, as well as increased utilities costs.
In Q2 2022, Payroll expenses rose by 73.4% year-over-year, while personnel expenses as a percentage of Total Sales increased by 335 bps. This growth primarily resulted from the salary indexation that took place in Q4 2021, a higher share of stores in the ramp-up stage and the Utkonos acquisition.
D&A increased by 17.2% due to an increase in owned selling space of 2.4% year-over-year. D&A as a percentage of Total Sales decreased by 1 bp due to the declining share of owned selling space in Total Selling Space.
Lease expenses as a percentage of Total Sales rose by 74 bps, primarily due to the acquisitions of Billa and Semya, both of which have a higher percentage of leased versus owned stores in their portfolios. The share of leased selling space for Lenta overall was 35% as of 30 June 2022, compared to 26% a year ago.
Store Operations as percentage of Total Sales increased by 12 bps year-over-year, mainly driven by 10 bps increase in repairs and maintenance and 5 bps increase in cleaning costs, while security costs decreased by 3 bps.
Advertising costs during Q2 2022 were up 62.7% year-over-year, due to investments in our growing online business as well as an increase in media related expenses as a result of organic growth (especially in the Moscow Region).
Cash Flow Statement, pre–IFRS 16