Q2 2026 Migros Ticaret A.S. Earnings Call
Speaker #1: Scope on our second quarter results for 2026. I guess it's worth to start with a brief description of the quarters and from this presentation moments we added a page for you, a simple scorecard, which is on the page 5, so we're going to just start reviewing the quarter results very briefly.
Speaker #1: So I guess, since you all received the presentations, we're going to just start as usual with the page numbers. On page 5, with the quarterly scorecard, it is worth to express that we have come through a challenging quarter, where we continued delivering a clear real growth again.
Speaker #1: However, it is definitely worth to express that consumer purchasing power remains under pressure in this existing inflationary environment. Obviously, we remain focused on executing our growth strategy, in all fronts, basically continuing with stock expansion, strengthening our online channels, and obviously focusing on operational efficiency as well.
Speaker #1: So second quarter itself, in terms of net sales, delivered 2.7% year over year growth, reaching around 125 billion of turnover. Our same stores in this quarter remained broadly flat, while we had improvements continuing on our basket size real growth.
Speaker #1: On the other part, our online operations, in terms of commercial trade, grocery, and meal together, delivered another strong growth at the levels of 21% real growth, and reaching around 327,000 orders per day.
Speaker #1: So during this quarter, we continued, as I expressed, physical expansion with another 64 stores and bringing our store numbers at the levels of 3,000, 830.
Speaker #1: And we delivered roughly 2.3% of space growth in terms of physical expansion. I'll repeat that: for this quarter, stood at the levels of 4.3%, and our modern trade market share stayed at the levels of 15.3%, while our overall market stood at the levels of 9.7% levels.
Speaker #1: So with this quarter results, I guess it's worth to express at this beginning of the presentation that we remain on track to achieve our 2026 guidance, especially with EBITDA store expansion and capital expenditures ratios we will be keeping our guidance levels.
Speaker #1: So that will be the brief summary of the quarter itself, and now we will continue with our financial and operational review to dig in in each critical KPIs.
Speaker #1: So continuing with page 6, our market share evolution. In the first half of the year, we reached 9.7% total market share, which is slightly below about 10 basis points compared to last year's same period, and similarly for our modern market share we have a market share levels of 15.3%.
Speaker #1: We addressed already the different reasons of what categories and formats where the market share is lagging behind, and we are taking definitely our actions regarding our overall strategy to continue growing our market share.
Speaker #1: Basically, one of the reasons is looking like a late season start for the seasonal activities, which is impacting our June figures mainly. And And overall, when we just try to understand the market dynamics on different categories, we explicitly find out that alcoholic beverages is one of the reasons that we are lagging a bit behind the market share figures.
Speaker #1: So we will be just also addressing this important category for our growth periods and starting from July we already recovered part of this market share losses, and definitely we will be continuing focusing in across categories to go back again, increasing our market share targets.
Speaker #1: To continue with our expansion, our store numbers reached, as I expressed, 3,830 with an expansion of 115 stores already opened in the first half of the year.
Speaker #1: Around 50 stores in the first quarter and 64 stores in the second quarter itself. As we addressed earlier, we are focusing on relatively larger store formats like MMs and micro center stores, which are targeting expanding in different regions, which is not present at the moment.
Speaker #1: So this expansion provides us a better penetration in terms of market share and different category penetration as well, where we are missing in terms of representation in specific cities and districts.
Speaker #1: All in all together, this expansion resulted into 2.3% physical space growth versus last year, and definitely worth to elaborate our online expansion is still continuing aggressively, we added another 100 levels of stores into our online expansion, and we reached 1,127 stores which are servicing online, and delivering as well online.
Speaker #1: And on the other hand, we also now embrace a regular service of pickup, which is click and collect basis, where we improved another 1,000 store addition to have an availability for stores which are not delivering but also helping shoppers to click and collect from the store address.
Speaker #1: Continuing with our capital expenditure on page 8, for the first half of the year we reached 6.3 billion of capital expenditures. Which are roughly 2.6% of our turnovers, and similar to last year's same period expenditures.
Speaker #1: But overall, if you can just understand the breakdown of the capital expenditures, we have a strategic priority moves definitely we are still keeping store expansion as number 1 priority, with 115 stores and at the same time we are putting a lot of efforts, as you can recognize from the pie chart, more than 40% of our capital expenditures are going right now into man hour savings especially for automational initiatives and some additional digitalization efforts.
Speaker #1: Which are helping us in terms of physical stores and online stores at the same time to representation to help us in terms of operating efficiencies at our core business of grocery retail.
Speaker #1: And obviously we are putting more efforts regarding refurbishments, and not to mention Migros is 75 years old retailer, so in that representation we have stores where we want to also refurbish from scratch.
Speaker #1: And at the same time putting more efforts in terms of new format devolutions and especially when we review our format strategies category strategies the space allocations of differentiation into some existing store basals are part of the strategy so refurbishments will continue to be one of our focus area for a better capital expenditures especially on working capital allocation.
Speaker #1: So of course combined with our distribution center and digital ecosystem initiatives we want to express that our priorities will be based on return on invested capital to the favor of digital initiatives which are helping the companies overall return efficiencies.
Speaker #1: Continuing with same store sales performance on page 9, for the second quarter of the year we have a flat life for life sales growth in terms of CPI adjusted figures.
Speaker #1: So we started the year with around 3% levels and now we are almost flat. And that is basically the area of focus for the company as well.
Speaker #1: We recognize especially the traffic losses reasons and the definition of the regions definition of the formats and obviously the categories which are relevant so to make sure that we are clearly addressing this issues in terms of traffic generation.
Speaker #1: Obviously not to mention shoppers are under pressure so that is not surprising situation. We are clearly aware and we are now getting more aggressive in terms of how to attract these shoppers into our store base.
Speaker #1: And to go back again to the positive levels of traffic flow when we just of course recognize the reasons and the measures to address we already addressed this as I expressed the alcoholic beverages categories are and also the seasonality impact which is a bit a kind of a delay on seasonal stores activities which are impacting the June figures in a sense.
Speaker #1: That has been already addressed and starting from July the real season impact is taking place. So which I can express already that traffics are positive in that reflection.
Speaker #1: And at the same time the categories which are relevant which we have to be addressing where we are to address those categories we will be just also reaching the levels of the target which are positive traffic flows as well.
Speaker #1: On the basket size front we still deliver real growth even in the environment of a difficult purchasing power situation. Basket sizes are still motivating us in terms of the growth potential and obviously the promotions are one of the key drivers of such basket size growth operations which we are in need of continuing the support in this current inflationist environment.
Speaker #1: So overall summary of the top line on page 10 you can see that we realized already in terms of total growth in the second quarters at the levels of 2.7% where we reached 125 billion almost turnovers which is equivalent of 36% nominal terms growth.
Speaker #1: And in the first half of the year we delivered 241 billion of turnovers where we can express I think not to mention in terms of real top line growth an important figure to continue in a muted consumption patterns of shoppers.
Speaker #1: And we remain focused to deliver of course a better results in coming quarters especially with the new season impact. So now moving into the profitability figures starting with the gross profit page 11.
Speaker #1: In terms of gross profitability it's one of the important years that our policies regarding maintaining the growth of the company is also reflected into our gross profitability.
Speaker #1: And as I expressed at the beginning of the presentation promotion activities are one of the areas where our definitely suppliers also are focusing in order to maintain the demand.
Speaker #1: So all in all our gross margin has a decline as we can address especially in second quarters we have a reduction at the levels of 120 basis points with the figures of inflation accounting.
Speaker #1: And the other accounting elements if we are just to address this accounting elements at the levels of 60 basis points that is in terms of reduction on gross profit at the levels of 60 basis points.
Speaker #1: Where we can address around 20 bips of this is relevant with our transition which happens in the first quarter of the year which are related with the distribution center employees moving into Migros payroll.
Speaker #1: Which has lifted our cost of warehousing at the levels of 20 bips where we account those under our gross profitability. So the rest is pretty much around another reflections of for health years results as you can see around 50 basis points of reduction excluding accounting implementations impacts.
Speaker #1: So the rest which is at the levels of 30 40 basis points are directly related with the promotional aggressiveness which we are taking place in the second quarter especially where we focused heavily on promotions.
Speaker #1: So that is the situation for the first health and especially second health of the second quarter of the first health results. And basically of course the trend is more important for us as we know that the season started a bit late.
Speaker #1: Compared to regular years due to some school year impacts and everything. And the climate as well especially one of the reasons. But starting from July as I addressed the demand is already taking place in the seasonal stores.
Speaker #1: And where we still maintain our aggressiveness in terms of promotion there are some additional elements in terms of promotional mix and of course category mix of turnovers which are on the positive side of the equation.
Speaker #1: Which will help us in the third quarter itself in terms of gross profits generation. Continuing with our operating expenditures on page 12. Our operating figures in the first half of the year reached 56 billion of expenditures which are roughly 23% of our overall sales.
Speaker #1: And as you can see there is a 50 40 bips increase in terms of our operating expenditures over sales ratio. However it is worth to express that there is a significant part of this operating cost expenditures expansion coming from depreciation and amortization item.
Speaker #1: Of course part of it is relevant with our asset expansions. If we are just for the sake of understanding the direct element of operational expenditures when we exclude the depreciation and amortization you can see that in the first half of the year there is an further improvement in terms of our efficiencies at the levels of 30 40 bips of improvement already realized in the first half of the years.
Speaker #1: I think one of the reasons are pretty much the IFRS driven reclassification of the rental cost of obviously but the other piece which is further important our energy cost savings which are taking place with the new initiatives which we put in place in the last couple of years are now paying back.
Speaker #1: And it is also worth to elaborate where we already had an important cost increase at the beginning of the years partly due to the movements of distribution center employees and our payroll.
Speaker #1: And next to it with a three years important union agreement which is resulted ahead of inflation numbers at the moment in the first half of the year.
Speaker #1: So even if we had this two important headwinds coming from staff cost elements I think the improvement on operating expenditures around 30 40 basis points is an improvement is a clear gain for us for the coming quarters.
Speaker #1: Where basically the main efficiencies are addressed and managed through process reengineering and at the same time store restructuring coming from our product assortments and category management instruments which are taking place on in-store efficiencies.
Speaker #1: And not to mention definitely the automational and digitalization efforts especially in-store and at the online operations are pretty much the majors handful supports which are taking place even if we had this important headwinds on unit cost of the staff.
Speaker #1: We trust that we will maintain this efficiencies in the second half of the years with an increased turnover coming with inflation in the second part of the years.
Speaker #1: Which should benefit towards our advantage on the second half of the years pretty much the similar reflections of last year's we had a similar impact at the beginning of the year of 2025 as well.
Speaker #1: Next we will continue with our EBITDA generation on consolidated figures. As we addressed I mean our EBITDA generation is pretty much flat in terms of excluding inventory driven and interest driven impacts.
Speaker #1: As we can see that on our reported figures we reach 11 billion of EBITDA generation in the first half of the year where there is a decline on IS29 figures as you can see both in the second quarter itself and also the first half of the year around 60 bips of decline on IS29 figures.
Speaker #1: Whereas when we exclude this important accounting elements and straight going towards the calculation of underlining EBITDA margin we can see that it's pretty much flat versus last year's 3.1% last year and 3% levels of this year.
Speaker #1: So as I try to express even if we had important investment on pricing and promotions which impacted around 50 basis points on gross margin generation we recovered around 40 bips of this reduction of gross margin with operational efficiencies.
Speaker #1: Hence we ended up around 10 bips of slight decline on EBITDA generation. Where we still trust that this is an important element because that is where the cost hits are already taking place in the first part of the years.
Speaker #1: And considering that there is no additional adjustment on salaries in the second half of the years. We trust that we're going to deliver a better margin generation hence the reason that we didn't update it anything around our guidance levels to trust that we can deliver our EBITDA targets which we express at the beginning of the years.
Speaker #1: Coming to do net profit generation. Bottom line of the company. We realized 645 million of losses in the second quarter of the years and all in all in the first half we reported 1 billion levels of net profit generation.
Speaker #1: As we addressed throughout the different items of the P&L we know where we at this the reasons of the net losses. And mainly the gross margin which is which is our important driver of loss this this quarter.
Speaker #1: And since we are already managing it and we know the reasons and we know how to tackle it it is important to understand the reasons and the issues around this traffic generation and which is important for the second quarter of the years.
Speaker #1: And in taking into account basic drivers of loss is about gross margin is the largest piece. And another two important element one is the net financial income decrease versus last year's which is relevant with the interest rates decline.
Speaker #1: Which we we had previously versus compared to last year's. And there is another element as I addressed already negative impact coming from depreciation and net monetary gains are impacting our profit generation.
Speaker #1: Of course below EBITDA levels majority of the items are addressed and we are just managing it accordingly. But the most important driver is just to improve the EBITDA generation of the company in the second half of the years.
Speaker #1: To address the net losses to be recovered. And considering the reflections of course the measures that we are taking place is pretty much relevant with the season impact.
Speaker #1: We already as I expressed putting a lot of efforts on seasonal stores and it is paying back especially July figures are promising and August started with a similar positive move.
Speaker #1: Especially both in traffic and the overall gross margin generation for the company. And of course not just the seasonality obviously we are taking a lot of new measures regarding the efficiency prioritization especially the majority of capital expenditure for this year to be put into such store driven distribution center driven efficiencies to be improved for our company's overall profit generation.
Speaker #1: Not to mention working capital also will be one of our area of focus. In order to address a better cash generation however we have to be prudent we are in a difficult environment where we also support not just our shoppers in terms of their budget but also we are supporting our trading partners our suppliers in terms of how to tackle this difficult environment under declining purchasing power situation of the shoppers.
Speaker #1: So finally we will address our net cash generation. As basic nature of our overall historical focus on free cash flow generation. Even if we had issues in the second quarter with profit generation companies definitely focused on delivering free cash flow.
Speaker #1: And the areas are very explicit we have been delivering strong cash generation in different fronts of the overall operation itself. But also at the same time our ecosystem driven initiatives are also now helping us in terms of generating free cash flow which is a very good sign for us.
Speaker #1: Even though they are new initiatives we are we are proud and to express that they are already contributing in terms of free cash flow generation.
Speaker #1: And which has resulted into a 5.8 billion levels of free cash generation in this first half of the years. Which which resulted into 31.7 billion of net cash position at the first half of the year results.
Speaker #1: There is an important element on cash conversion cycle. You can see that compared to last year's there is a decline on our cash conversion.
Speaker #1: Which I try to express that in this environment of course we are trying to focus on shoppers budgets to improve their baskets and to improve their traffic.
Speaker #1: Where we are partnering definitely with our suppliers to make sure that we can continue building our trading activities strongly. We will maintain this position and of course there will be some areas of improvement that we're going to target on the stock level on the payables level.
Speaker #1: But overall the focus will be on on delivering top line growths together with our trading partners support. So that will be the financial part of the presentation.
Speaker #1: Now we're going to move to our operational updates. Very briefly we will touch base on our two important initiatives continuing on one front our e-commerce business.
Speaker #1: As I try to express at the beginning of the presentation the real growth in terms of 21% is a promising one. Across the whole e-commerce channels.
Speaker #1: I mean I can proudly express including all marketplaces and meal marketplaces. This is one of the strongest real growth generation. And which means that our efforts which are deliberately allocated into the digitalization of our grocery operation is paying back.
Speaker #1: And our operations in both fronts both scheduled delivery and instant delivery they are contributing positively. To our bottom line of the company's overall. So is a profitable driven initiative.
Speaker #1: So in that reflection it's also another important element that we are adding more shoppers especially coming from our online meal operations. Adding more and more new customers.
Speaker #1: Another 900,000 of new shoppers are added in terms of unique customers. Into our digital portfolio now reaching 6.6 million shoppers in 12 months statistics.
Speaker #1: So we will continue focusing on our digital initiative both in terms of grocery and meal itself. On the other part fintech operations under the umbrella of MoneyPay brand.
Speaker #1: Is doubling in terms of size of the the top line contribution. Which is another good news that the the bottom line of the fintech operations are now also profitable.
Speaker #1: And both improving our contribution of the bottom line and also at the same time supporting the free cash flow generation as well. In both fronts.
Speaker #1: And in terms of transactions per day they already reach a million transaction per day in terms of all time high. And in in June figures.
Speaker #1: So in these two major initiatives combined I think it is worth to elaborate the what we call substantial ecosystem traffic generation. Which we invest for the future of the company.
Speaker #1: We know that traffic is the key both for physical operations and of course online operations. So to build this ecosystem of traffic generation is our core focus.
Speaker #1: As we addressed earlier in other presentations as well. If we are to split this in four three major pillars. Core retail combined now with online.
Speaker #1: Which means that our online grocery has expressed as a core business. So combined together it it's providing 2.6 million transaction per day at the moment.
Speaker #1: And on the other part meal business is roughly now helping another 100,000 transaction per day for us. And similarly fintech is adding another 400,000 transaction per day for the overall averages of the years.
Speaker #1: And all in all combined we are targeting by the end of the year more than 3 million transaction per day to be represented within our ecosystem.
Speaker #1: So all this initiatives as I addressed in other occasions are putting efforts to generate further traffic into our core business. So that will be the summary of the operations and now to summarize with underlining performance on page 20.
Speaker #1: Our net sales growth has reached 4.5% in the first half of the years. And our EBITDA generation in terms of IS29 figures reached 11 billion with a slight decline versus last year's in terms of margin contribution.
Speaker #1: And IS29 excluded EBITDA generation is slightly positive in terms of comparison to last year about 2% increase in real terms. And in in reflection of almost flattish EBITDA margin generation.
Speaker #1: And in terms of net income we generated a 1 billion IS29 accounted figures where we had loss on Q2 itself but we are focused and delivering better results in Q3 and Q4.
Speaker #1: So summarizing together with our guidance right now on page 21. As the final page of the presentation. On the top line of course the inflation is an important element in nominal figures we are continuing focusing delivering our nominal targets.
Speaker #1: However inflation is is a bit is a bit fluctuating. We know that there is a trend downward. However on the other hand the oil prices are putting another challenge on into inflation.
Speaker #1: So that is why we are just prudent on the on the top line growth. We delivered already 4.5% in the first half. And we guided the market it within the levels of 5 to 7% levels of sales growth.
Speaker #1: And of course while we are just keeping this guidance levels remains unchanged. Current trend suggests especially with the fluctuation of the inflation. To land at the lower end of the guided range level for the end of years.
Speaker #1: So at the EBITDA margin generation both in terms of IS29 and underlining margin of EBITDA margin. We are keeping our guidance targets as on track.
Speaker #1: 6 to 7% on IS29. And 4 to 5% on underlining margin without final without IFRS impacts. So this is important for us because we know that our margin generation was weakest in the first half of the years.
Speaker #1: And as I addressed with the measures and the targets we have been taken already. We trust that we can deliver as as we addressed at the beginning of the years.
Speaker #1: Our EBITDA generation. When it comes to expansion we already delivered 115 stores. We already added another 15 stores in July. So we reached almost 130 stores and we trust that we can deliver our expansion target as guided.
Speaker #1: And capex will be pretty much at the guidance levels of 2.5 to 3% with the prioritization definitely focusing on digitalization and in-store automation to help man hours reductions and efficiencies.
Speaker #1: So this will be the presentation for the first half of the years. Now as usual we will be ready for your questions. Thank you.
Speaker #1: Thank you Özgür Bey. Dear participants if you would like to take question please raise your hand. We will give you the floor. There's one question from Cemal Demirtas.
Speaker #1: Yes please Cemal Bey go ahead.
Speaker #2: Thank you for the presentation. My question is about the growth sites. This quarter we have the lowest growth maybe you know we didn't see for a very long time.
Speaker #2: So could you further elaborate the details for instance alcohol site what was the portion of alcohol like beverages in your revenue that have some impact and do we see any transition from seasonal you know could you again elaborate that because when I look at your store openings we see 115 for first quarter first half.
Speaker #2: But net opening is 38 only. So did you you know you I understand that you also close some stores. So is it a part of this transition that we see you know low growth.
Speaker #2: Just you know more elaboration on that. And related to the your price index level and I under any color on the you know the third quarter.
Speaker #2: You mentioned that July and August looks better. But any further you know detail would be very very helpful. Thank you.
Speaker #1: Thank you Cemal Bey for the questions. Reflections of expansion is of course important but to start with category driven initiatives in terms of growth.
Speaker #1: There is an element especially in Q2. There is the shoppers are very prudent on their spending. That's first of all what we have to recognize.
Speaker #1: And we are definitely taking measures and the most important reflections of course this is a trading activity we manage together with our trading partners our suppliers.
Speaker #1: And the first reaction is going towards promotional activities. I can express that fresh categories which are not heavily promotion driven they are actively already visited.
Speaker #1: So which means there is not declining element in terms of our fresh traffic. Even I can express that daily categories put some vegetable meat categories all these categories are doing even better than what we expect.
Speaker #1: However when it comes to packed food shoppers are more prudent. The reasons are pretty much similar they want to be picky on on the on the best benefit of the overall budget driven initiative.
Speaker #1: So that is why it is heavily promotion driven. So that was one of the reasons that especially the traffic we had some issues. And there are some categories which we we don't need to pick all this elements into the seasonal categories like alcoholic beverages or soft drinks.
Speaker #1: Because the seasonality element was a bit delayed this years. It might be the same for the coming years but there is a base impact with a stronger June.
Speaker #1: Where the vacation started earlier. Hence the reason that seasonal store activities watch were much earlier. Whereas this years we had a late closure of the stores universities exams.
Speaker #1: I mean these are all minor reasons but ended up with some seasonal stores activities. Realized later. Which we already saw the reactions are already there.
Speaker #1: We have a better traffic in July and August. But overall figures we recognize that we are not happy with our top line performance. I'm not just putting reasons in terms of seasonality elements.
Speaker #1: We have to deliver better supply. And we recognize the necessities and we addressed different commercial models which are required for different store formats. There are of course better traffics coming from digital.
Speaker #1: There are better traffics coming from different formats. Smaller format larger formats. There are a lot of details as you can imagine. That we can do a better traffic generation and further improvements into our commercial activities.
Speaker #1: This is going to be our target for third quarter itself. And when it comes to expansion we are reviewing our portfolio. Not for the sake of just reviewing which we are doing every years.
Speaker #1: But this year we are more aggressive in terms of the existing efficiencies at the store level. We know that manpower is more expensive. And stores need to be more efficient.
Speaker #1: And there are stores that are not efficient. So we have already strict rules that a store which is not performing to the levels that we want we are closing down.
Speaker #1: And some of them are relevant with new initiatives like our personal care initiative. Some of them are driven with our existing grocery retail business.
Speaker #1: So that is why net net increase of stores numbers is is important. And this year is relatively less than the previous years because we had some other higher store closures.
Speaker #1: So that is definitely driven by the performance of the stores.
Speaker #2: And there was a question about the your your price index. Özgür Bey. And any you know could you share the level of alcoholic beverages in your revenue.
Speaker #2: I'm roughly calculating just the from the numbers you gave about your position. You know the market share and the the impact on market share.
Speaker #2: I come up with like 7% but I don't know if it's like a made up number.
Speaker #1: So alcoholic beverages to my memory is representing about 8% of our business. If I'm not mistaken. But we will correct if there is the team will just update us if there is a different number.
Speaker #1: So it is not a significant portion of the business obviously. But for some seasonal stores it's an important element. So that is why it delivers some mathematical impacts.
Speaker #1: But commercially we have other categories to be focused as well to deliver a better performance.
Speaker #2: And any color on your price index if possible. Sorry for repeating.
Speaker #1: Price index Cemal Bey you mentioned with the competition or.
Speaker #2: No your your your overall you know in the baskets your inflation you know Migros inflation.
Speaker #1: Oh our inflation. So that's pretty much similar to CPI. Slightly below I can express.
Speaker #2: Thank you. And I wish the best for the following quarters. But because you know this quarter was one of the you know we were expecting some slow down.
Speaker #2: And from the colors from the presentations but I hope this is the the you know the the worst might be over with this because we know we we are not used to seeing such low growth in your company.
Speaker #2: So I wish you the best Özgür Bey.
Speaker #1: Thank you Cemal Bey. We trust we can deliver better. Thank you Cemal Bey. I guess another question is from Eren Erciş. Eren Bey yes please.
Speaker #1: You may go ahead. Please unmute and go ahead. Thank you. Maybe we could have the second question from Hamza Canan.
Speaker #2: Can you hear me?
Speaker #1: Yes we can hear you now Eren Bey.
Speaker #2: So I I just some connection issues. Sorry for the late.
Speaker #1: No worries.
Speaker #2: Özgür Bey thank you for the presentation. At your capital markets day you note that hybrid stores carry roughly 35% higher basket sizes and it's around 2 point better gross margins than existing stores.
Speaker #2: And we are now observing your hybrid stores share in total network it's reached 67%. And this favorable mix shift should on its own have been a tailwind to consolidate gross margin.
Speaker #2: Yet now the gross margin still contracted 1.2 point year over year in this quarter due to promotional activities as you mentioned. Could you help us separate the two forces at work specifically did the standalone gross margin and basket premium of the hybrid segment hold up in second quarter or has there been some erosion in those unit economics?
Speaker #2: And is promotional intensity symmetric across channels or are we having the promotes more aggressively online given rising competition there. Could you more elaborate on that.
Speaker #2: And my second question regarding competition you know Uber is acquiring now the delivery hero do you expect any competition pressure on your online operations.
Speaker #2: Thank you.
Speaker #1: Thank you for the question. This is pretty much the most important commercial element of Q2 itself. So that is why it is definitely worth to elaborate further.
Speaker #1: Two part of the equation is one part of definitely our what we call hybrid shoppers. And hybrid stores. Are delivering better gross margin. So this is why we are focused on building more stores with online services.
Speaker #1: And creating more shoppers which are doing online offline together. So that is the overall proposition that we want to target. And which is already taking place.
Speaker #1: So if we are to address the the the depth of promotional activities which are significantly ahead of last year. So which means that if in in in in an comparison if we didn't have the hybrid shopping of shoppers and or similarly expansion of our online activities into physical stores.
Speaker #1: We might have even receive a deeper reduction on gross margin. So which means that the help of online both in the shoppers hybridization and store hybridization is helpful.
Speaker #1: This is the numbers that we are chasing and this is what we trust to continue. On the other part of the equation is of course we are not alone.
Speaker #1: We we we are working with our trading partners. Trading partners are also having similar issues. With the shoppers shopper expectations and inflationist moves which are challenging basket sizes.
Speaker #1: So that is why we are cooperating. So it doesn't mean that every promotion costs directly to us. We are subsidizing the cost of promotions together with our trading partners.
Speaker #1: So which means that this equation is has to be just monitored together. But there is another element that online in terms of delivery cost is a more costly operation.
Speaker #1: So that is another element that we want to also cooperate with our trading partners. Where we share the cost of delivering. And similarly store operations are more costly when you do online operation in a store because you put more people for picking.
Speaker #1: So where we also try to cooperate with our trading partners. So these are three four different dimensions of promotional cost sharing delivery cost sharing picking cost sharing which we are trying to do together with our suppliers.
Speaker #1: So this is why it is not a simple equation. That's what I'm trying to express. This is where we focus to make sure that we combine doing it together with them.
Speaker #1: To make sure that is a sustained activity. And the signs that we are having from e-commerce at the bottom line of it is positive for us.
Speaker #1: This is why we trust that we can continue focusing and delivering more and more. With online operations. When it comes to click and collect not to just misguide the market.
Speaker #1: Click and collect is a significant increase in terms of online services. But the penetration of click and collect shoppers are very limited at the moment.
Speaker #1: So we should still focus on the main operation which has which is based on delivery. Which is the most important part of the equation is coming with the delivery driven expansion which at the levels of one third of our store expansion today.
Speaker #1: So when it comes to Uber acquisition on delivery hero. It is definitely an important element. We are monitoring it very carefully. So that is why we know that there will be some antitrust issues.
Speaker #1: And not relevant with Turkish market alone. With some other countries as well. And it will take a while. To my knowledge about a year or so.
Speaker #1: That a transaction to be processed. And during this environment we are still focusing and we are the highest growth operator today in terms of meal delivery operations.
Speaker #1: This operation is still not contributing positive. We have to make sure that this is a new initiative for us. And where we will be just looking for every kind of opportunity to grow this operation.
Speaker #1: And in an environment where Uber is is a very strong competitor.
Speaker #2: Thank you Özgür Bey.
Speaker #3: Thank you.
Speaker #2: And the next question is from Hanzade Hanım. Yes.
Speaker #4: Thank you. Özgür Bey. Thank you very much for the presentation. I do apologize but I I also want to make a follow up on the revenue trends.
Speaker #4: You have highlighted that I mean promotional activity has I mean peaked. So do you see a visible trade down customer trade down in all categories.
Speaker #4: And how the competition is responding to this. So for example are they also taking down the prices. Challenging you further. And what is your current pricing differential to like discounters after this promotional intensity.
Speaker #4: And how long can you continue on like this. Because the mobility in Turkey. Seems low actually. Particularly in the tourism sector. And this is your high season.
Speaker #4: But do you rely on margin expansion in the second half despite you see lower revenue trends. So I'm trying to understand I mean what makes your comfortable to achieve this.
Speaker #4: Margin guidance as well.
Speaker #1: Thank you Hanzade Hanım. First of all I can express that the trading down is is definitely taking place. I mean this is across categories.
Speaker #1: But this is not a surprise. I mean we were expecting it and we are replying it accordingly. With every promotional activity or new private label generating commercial trading activities as well.
Speaker #1: What I can express there there is always one one important element. Where you are trading down. This is more relevant with packed food. When it comes to fresh.
Speaker #1: Trading down is also relevant. But trading down there is no such new channel to trade down. Today I can definitely express that for our operations it's a simple answer.
Speaker #1: But our fruits and vegetable pricing is even better priced than the open bazaars. So which means that there is no trading down relevant coming from fresh businesses.
Speaker #1: However when it comes to packed food everything which can be stored. Shoppers are keen to shop when there is a promotion location. Because there is no rush to do the shopping tomorrow or next day.
Speaker #1: So that is why on every FMCG categories. Even if it's detergent or tea or sugar oil doesn't matter. Shoppers are definitely keen to buy at the promotion locations.
Speaker #1: So to to our to our perception. I can express that we are not the only one. I mean all the channels including discounters. Are also doing the similar promotional activities.
Speaker #1: Which is on our overall proposition of trading activity. Supermarkets are high low priced environments. Which is not a surprise. However when it comes to other formats.
Speaker #1: They are used to be everyday low priced. Formats. But today I can express that every across I mean all the players in the market are building their business based on promotions.
Speaker #1: So which means that there is a clear trend about shoppers in terms of trading down. So where we have to be just replying accordingly.
Speaker #1: But as I said that is not a surprise. This is what we expect. And the depth of promotions are higher than previous year. So that's a challenge.
Speaker #1: That we have to tackle together with our trading partners as I am expressed. So pricing difference I can see no difference at the pricing at the moment.
Speaker #1: I mean every player in terms of organized trade are trying to match the pricing. To the shoppers overall budget requirements. So we cannot say there is a price difference from one player to the other.
Speaker #1: Every player is trying to be aggressive. In order to compete. With the shoppers preferences. How do we get more comfortable in the second half of the year.
Speaker #1: It's the good question. Because this is first of all the seasonality element which we trust. We know that tourism is not strong. However I mean the local tourism is important for us.
Speaker #1: That is why we trust that our seasonal stores will be performing not as heavy maybe as in the previous years. But relatively better than the than the first half of the year definitely.
Speaker #1: So which means which is giving us the trust that we can deliver a better margin. In the third quarter and the fourth quarter as well.
Speaker #1: And the signs already taking place. And we are not just waiting and seeing the reaction. We are taking a lot of measures in terms of our stores overall product mix.
Speaker #1: Portfolio mix. And in terms of shopping efficiencies. In terms of store efficiency. So these are all combined efforts that we are taking place right now.
Speaker #1: In order to address the challenge. And the seasonal stores will be one of the good element to help the bottom line of the company.
Speaker #4: And thank you Özgür Bey.
Speaker #2: Thank you Hanzade Hanım. Next question is from Maxim.
Speaker #5: Yes. Good afternoon. Thank you for the presentation. Özgür Bey I would follow up again on on the growth. And as you basically confirmed the the guidance.
Speaker #5: But even to reach the lower end of the guidance. From 4.5% in the first half right to reach 5% for the full year. You need some acceleration in the second half compared to the second quarter.
Speaker #5: Something around 5% or slightly above that. Can you confirm that this is something that you see in in in July and August. Acceleration to those levels.
Speaker #5: Compared to to the to the second quarter. And on margins. So underlying margins were were flat basically in the first half. Is this something that you think you can maintain in the second half.
Speaker #5: With should we expect some continued gross margin pressure on promotions. But offset by better OPEX to sales. So yeah how would you look at at underlying margin.
Speaker #5: Compared to last year basically for for the full year and second half. Thank you.
Speaker #1: Thank you Maxim for the question. Both front. We trust we can deliver. I mean the short answer is we are positive that we can deliver our guidance.
Speaker #1: It will be difficult. It will be more difficult than the previous years. But we trust we can deliver on it. We have taken our measures and plans to make sure that we reach our targets.
Speaker #1: The the top line is pretty much especially when it comes to our nominal figures. We have even stronger trust. However of course inflation accounting is accounting.
Speaker #1: So the inflation itself is going to define where we're going to end up. This is why we are just prudent on our guidance level.
Speaker #1: It doesn't it doesn't mean that we are in nominal terms we have a much higher trust that we can deliver. The issue is about how we're going to end up with inflation.
Speaker #1: And that inflation is is a kind of an element of unfortunately oil price today. Which is an important unknown. That is why we are trying to be prudent on on how we're going to just end up with the range guidance.
Speaker #1: When it comes the focus of our seasonal activity. I expressed and and I'm confident that especially July was already taking place. I mean July is a strong one.
Speaker #1: August started also strong. So which means that especially for the first two months of the third quarter we are positive. In terms of our growth pace.
Speaker #1: And that is why we want to achieve our targets. This is why we want to keep up where where the targets are expressed at the beginning of the year.
Speaker #1: In terms of margin you already expressed. I mean there will be two elements that we trust. One of them is just the OPEX base.
Speaker #1: The second half of the year we're going to just benefit from the fixed cost base advantage. We're going to increase our top line with inflation.
Speaker #1: However the cost base will be pretty much flattish. So that is what we trust. And on the other part we're going to do better in terms of commercial performance.
Speaker #1: We want to do better in terms of commercial performance. So all in all the margin guidance should be kept. That's what we trust and what we just have our teams focused.
Speaker #2: Thank you Özgür Bey. I guess last question is from Rajat Suri.
Speaker #6: Hi thank you so much. I I wanted to just ask two questions. One is you know in the in Q2 we saw obviously promotional activity hurting the gross margin.
Speaker #6: I suspect also the basket size. But the traffic didn't follow. Obviously you mentioned July and August are better. So I just wanted to understand if there there's a just a time lag between your you know the promotional levels and when the customers starts to react to them.
Speaker #6: So that would be one question. And the second is I know one of your competitors has just had a change in ownership. There's speculation that perhaps they'll stop selling alcohol.
Speaker #6: I don't know as an organization if you've thought about what that means for you as an incremental opportunity.
Speaker #1: Thank you for the question. The promotional activities that is a bit too major category differentiation. As I said on the fresh categories promotions are not as efficient.
Speaker #1: Because fresh is consumed and finished. However on packed food FMCG promotions are more deliberate. Because you can stock the product. So but in in an environment such as now shoppers they're not keen to stock their products.
Speaker #1: So they want to purchase as much as they need only. So that is why promotional activities even if you do deeper promotions the ending solution of the promotion the ending outcome of the promotions are not as strong as in the previous years as well.
Speaker #1: So this is twofold. First you do more promotions. And your promotional efficiency are not as strong as in the previous years. So that is the dilemma of our trading partners as well.
Speaker #1: Which means our suppliers are keen to do more promotions to trigger the demand. However the promotions are not as efficient as in the past.
Speaker #1: So that is why we we have to be careful on how much further you go with the promotions. And which categories promotions are working.
Speaker #1: Or what type of promotion. So that's a lot of obviously operational details coming behind that. The second part of your question regarding our one of our competitors outcome.
Speaker #1: Yes important because at the end of it this is one of the rare operators selling alcohol beverages. So in case it is not confirmed officially it's not expressed anything officially.
Speaker #1: So that is why we cannot comment on it officially. However but in case they stop selling alcohol there should be a positive traffic that we trust to be built on us.
Speaker #6: Great thank you so much.
Speaker #2: Thank you thank you Rajat. I guess the last question is from Ezgi Hanım.
Speaker #7: Hi thank you for the presentation I have only one question. What should be expected in terms of fixed rent sales ratio this year? Is there any target or estimate that you can share with us?
Speaker #7: Thank you.
Speaker #2: Could you please repeat the question? We couldn't hear you clearly.
Speaker #7: Can you hear me now?
Speaker #2: Yes it's better.
Speaker #7: What is your expectations in terms of fixed rent sales ratio this year?
Speaker #2: You mean the rent to sales ratio?
Speaker #7: Yeah fixed rent.
Speaker #2: Fixed rent.
Speaker #1: Fixed rent yes. To be honest I mean we don't we don't have a direction on fixed rent. Our operation is doing both of them.
Speaker #1: Some stores are fixed. Some stores are based on turnover. So it is pretty much I think 50/50 kind of range. Half of our stores are based on fixed rent and half of our stores are based on sales turnovers.
Speaker #1: Is that an answer to your question or we need more details?
Speaker #7: Yes but under the cash flow statement you only book the fixed part of the rent right? I'm asking about that ratio. It's three point two point three percent in the first half.
Speaker #7: What should we expect for the full year?
Speaker #1: So it should be stable. I mean we don't change our policy of renting. So that is why we did existing ratio can be managed for the rest of the year as well.
Speaker #7: Okay thank you.
Speaker #1: We thank you.
Speaker #2: Thank you very much. I guess this concludes the webinar. Özgür Bey.
Speaker #1: So thank you very much for joining us today. And we trust that we can deliver better results in the second half. And we will be glad to see you in our third quarter results.
Speaker #1: Thank you for joining.
