24 Jan 2019 07:00
LENTA SALES AND OPERATING HIGHLIGHTS FOR THE FOURTH QUARTER AND FULL YEAR ENDED 31 DECEMBER 2018
St-Petersburg, Russia; 24 January, 2019 - Lenta Ltd, (LSE, MOEX: LNTA / "Lenta" or the "Company") one of the largest retail chains in Russia, is pleased to announce the Company's consolidated sales and operating results for the fourth quarter and twelve months ended 31 December 2018.
The Company made a decision to provide a more detailed breakdown of operating results, with separate sales data for retail and wholesale operations. Detailed information on a quarterly basis for the previous reported periods of 2017-2018 is available in Annex 1 and Annex 2 to this Announcement.
4Q 2018 Operating Highlights:
· Total sales grew 6.6% in 4Q 2018 to Rub 119.5bn (4Q 2017: Rub 112.1bn), including retail sales growth of 11.3% to Rub 115.3bn (4Q 2017: Rub 103.7bn) and wholesales growth of -50.7%;
· Like-for-like ("LFL")1 retail sales growth of 2.1% vs. 4Q 2017;
· LFL retail traffic growth of 0.0% and LFL retail ticket growth of 2.1%;
· 11 hypermarkets and 14 supermarkets opened on net basis2 during the fourth quarter of 2018;
· Total store count reached 379 stores as at 31 December 2018, comprising 244 hypermarkets and 135 supermarkets;
· Total selling space increased to 1,467,482 sq.m as at 31 December 2018 (+6.1% vs. 31 December 2017); and
· Number of active loyalty cardholders3 increased to 14.4m (+17% y-o-y) with approximately 96% of transactions in the fourth quarter made using the loyalty card.
12M 2018 Operating Highlights:
· Total sales grew 13.2% in 12M 2018 to Rub 413.5bn (12M 2017: Rub 365.2bn), including retail sales growth of 13.6% to Rub 392.1bn (12M 2017: Rub 345.0bn) and wholesales growth of 6.0%;
· LFL retail sales growth of 1.3%, which excludes LFL wholesales growth of 5.3%;
· LFL retail traffic growth of 0.5% combined with a 0.8% increase in LFL retail ticket; and
· 13 hypermarkets and 38 supermarkets were opened on net basis4 during 12M 2018 with 84.7 th. sq.m of net selling space addition.
Events in 4Q 2018 and after the reported period:
· Herman Tinga appointed as Chief Executive Officer of the Company;
· Dmitry Bogod appointed as Chief Strategy Officer;
· Rud Pedersen nominated as Chief Financial Officer. Mr. Pedersen will take up the CFO role and become a director of the Company during the first quarter of 2019, upon completion of the notice period with his current employer;
· Lenta signed a strategic partnership with Li & Fung, a leading global sourcing agency of non-food products, to upgrade non-food ranges, enhance quality and improve the efficiency of non-food supplies;
· The Board authorised a GDR buyback programme to be conducted between 29 October 2018 and 29 October 2019, under which total purchases of up to Rub 11.6bn may be made (equivalent to 10% of all the Company's GDRs at the time the program was announced)5.
1 Lenta's stores are included in the LFL store base starting 12 months after the end of the month in which they are opened
2 One hypermarket in Saint-Petersburg with selling space of 7,219 sq.m was closed in November 2018 as a result of fire. It is expected that this hypermarket will be repaired and returned to operation during 2019
3 Cardholders who made at least 2 purchases at Lenta during the 12 months to 31 December 2018 are considered active
4 Three supermarkets were closed during the reported period: two supermarkets in Moscow with selling space of 963 sq.m and 721 sq.m and one store in Tula (Central region) with selling space of 702 sq.m
5 Based on quoted GDR price as of the close of trading on 26 October 2018
Lenta's Chief Executive Officer, Herman Tinga commented:
"2018 was a challenging year for the Russian food retail sector, with strong competition for customers in a weak macro environment. In this context Lenta delivered robust retail sales growth of 11% in Q4, with positive same store sales alongside an increase of 6% in total selling space.
Our hypermarket business continues to deliver solid growth with sales up 8% in 4Q. Customers reacted positively to continuing improvements in our offering, range, marketing and communication which led to an acceleration in LFL sales to 1.8%. We were particularly pleased to achieve an increase in like-for-like each month of the reported period from October to December with traffic returning to a strong positive level in the last month of the year and customers continue trading up in our stores. We continue winning customers from competitors, especially other hypermarket players, regional chains and focusing on differentiation to compete with smaller formats.
Our supermarket format showed very rapid growth with sales up 60% in the quarter combined with LFL sales up 7.6% due to a combination of improvements in our offer to customers and new stores entering the LFL panel. While we are pleased with the impact of the improvements we made during the year we are not fully satisfied with progress and plan a series of new initiatives in 2019 to further improve the competitiveness and profitability of this business.
We saw a major decline in sales to wholesale customers in 4Q, primarily as a result of changes in the distribution strategy of some key wholesale suppliers. We expect this trend to continue in 2019.
The Company extended its lead in the hypermarket format during 2018 with 14 new stores. We entered four new cities during the year and improved our market position in all key regions. Four hypermarket openings which were planned for 2018 slipped into the first half of 2019 due primarily to bureaucratic delays.
While we are feeling some pressure from the challenging market conditions, overall Lenta is weathering the storm effectively. We have a strong team, a robust business model and a clear strategy to deliver improvements in 2019 and beyond."
Lenta Store Developments
In the fourth quarter of 2018, Lenta opened 11 hypermarkets on net basis and the total hypermarket count reached 244 stores across Russia. The Company entered four new cities during the quarter and is now present in 88 cities across the country.
During the reported period, the Company also opened 14 supermarkets on net basis. Lenta's supermarket network is now present in five regions (comprising Moscow, St Petersburg, Central, Siberia and Ural regions), with a total of 135 stores. The supermarket format's share in the Company's total selling space rose to 7.8% as at the end of the year.
Lenta added 56,775 sq.m of net selling space in the reported quarter. Total selling space as at 31 December 2018 increased to 1,467,482 sq.m, up 6.1% year-on-year, with 4.3% growth in the hypermarket format and 34.9% growth in the supermarket format.
Quarterly | Year to Date | |||||||
As at 31 Dec 4Q 2018 | As at 31 Dec 4Q 2017 | Net change | Change (%) | As at 31 Dec FY 2018 | As at 31 Dec FY 2017 | Net change | Change (%) | |
Total number of stores | 379 | 328 | 51 | 15.5% | 379 | 328 | 51 | 15.5% |
Hypermarkets | 244 | 231 | 13 | 5.6% | 244 | 231 | 13 | 5.6% |
Supermarkets | 135 | 97 | 38 | 39.2% | 135 | 97 | 38 | 39.2% |
Number of net store openings | 25 | 63 | -38 | -60.3% | 51 | 89 | -38 | -42.7% |
Hypermarkets | 11 | 30 | -19 | -63.3% | 13 | 40 | -27 | -67.5% |
Supermarkets | 14 | 33 | -19 | -57.6% | 38 | 49 | -11 | -22.4% |
Total selling space(sq.m.) | 1,467,482 | 1,382,745 | 84,737 | 6.1% | 1,467,482 | 1,382,745 | 84,737 | 6.1% |
Hypermarkets | 1,353,465 | 1,298,217 | 55,248 | 4.3% | 1,353,465 | 1,298,217 | 55,248 | 4.3% |
Supermarkets | 114,017 | 84,528 | 29,489 | 34.9% | 114,017 | 84,528 | 29,489 | 34.9% |
Total net selling space added (sq.m.) | 56,775 | 178,891 | -122,116 | -68.3% | 84,737 | 237,864 | -153,127 | -64.4% |
Hypermarkets | 45,297 | 153,282 | -107,985 | -70.4% | 55,248 | 198,567 | -143,319 | -72.2% |
Supermarkets | 11,478 | 25,609 | -14,131 | -55.2% | 29,489 | 39,297 | -9,808 | -25.0% |
Lenta's Operating Performance
Selling space additions combined with positive LFL retail sales growth resulted in overall retail sales growth of 11.3% for the fourth quarter of 2018. Total sales amounted to Rub 119.5bn in the quarter, a 6.6% increase compared to Rub 112.1bn for the same period last year.
A significant decline of 50.7% in sales to wholesale customers accounts for the difference between retail sales growth of 11.3% and total sales growth of 6.6% in the fourth quarter. Lenta has operated a relatively small wholesales business with volatile volumes varying over the last 5 years in the range of 3-7% of total sales. This business essentially involves bulk sales of a small number of SKUs at low margins with no service and is in large part driven by suppliers' desire to use retailers as an additional distribution channel to large customers. Development of the wholesale market, including significant changes in the distribution strategy of a small number of key wholesale suppliers, resulted in the steep decline of sales to wholesale customers in the reported period. Lenta anticipates continuing steep declines in wholesales in 2019. In order to make underlying trends in the core retail business clearer, the Company will report sales to wholesale customers separately going forward. Quarterly data showing wholesales separately for 2017 and 2018 is included in this release. Lenta Pro6 sales are included in retail sales, as they involve a high level of service with modest baskets containing multiple SKU's and have similar profitability to other retail business.
Lenta continued implementing a series of initiatives to increase the distinctive attractiveness of Lenta's offering to customers. These initiatives included changes in assortment (including introduction of new private label product ranges), marketing, Lenta's loyalty program and customer communication.
The Company maintained focus on digital marketing activities to reach customers, with special offers tailored on an individual basis to enhance traffic and basket size. The number of active loyalty cardholders increased to 14.4m as at 31 December 2018 (+17% y-o-y) and the share of transactions made with the loyalty card was 96%, an increase of approximately 2p.p y-o-y.
Hypermarket retail sales growth was 8.4% in the fourth quarter, while selling space growth in the format was 6.2%. LFL retail sales growth in the hypermarket format improved to 1.8% in the fourth quarter from -0.7% in the previous quarter, offsetting slower selling space growth.
The supermarket format's retail sales growth increased to 60.5% in 4Q 2018 from 57.5% in 3Q 2018, primarily driven by rapid selling space growth and significant acceleration in LFL retail sales growth in the format to 7.6% from 2.1% in the previous quarter. The supermarket format's share of Lenta's total sales increased to 7.6% in the reported quarter.
Lenta continues to grow rapidly in all key regions. The Company operates 37 hypermarkets and 31 supermarkets in Saint-Petersburg and the Leningradsky region with the share in total sales of 20.4%. Moscow and the Moscow region represented by 25 hypermarkets and 49 supermarkets continues to demonstrate strong double-digit sales growth with its share in total sales increasing to 12.6%. The share of other regions is more or less stable at around 67.0%.
6 Lenta Pro is defined as program for professional customers with special service, including Lenta Pro loyalty card with progressive discounts based on retrospective purchases. The program is active in both hypermarkets and supermarkets
Quarterly | Year to Date | |||||||
4Q2018 | 4Q2017 | Net change | Change (%) | FY2018 | FY2017 | Net change | Change (%) | |
Total sales (Rub, million) | 119,493 | 112,092 | 7,401 | 6.6% | 413,468 | 365,178 | 48,291 | 13.2% |
Retail sales (Rub, million) | 115,337 | 103,665 | 11,672 | 11.3% | 392,126 | 345,046 | 47,080 | 13.6% |
Hypermarkets | 106,285 | 98 025 | 8,260 | 8,4% | 364,690 | 327,062 | 37,628 | 11.5% |
Supermarkets | 9,052 | 5,640 | 3,412 | 60.5% | 27,436 | 17,984 | 9,452 | 52.6% |
Wholesales (Rub, million) | 4,155 | 8,427 | -4,272 | -50.7% | 21,342 | 20,132 | 1,210 | 6.0% |
Retail average ticket (Rub) | 1,096 | 1,128 | -32 | -2.8% | 1,018 | 1,062 | -44 | -4.1% |
Hypermarkets | 1,212 | 1,201 | 11 | 0.9% | 1,109 | 1,121 | -13 | -1.1% |
Supermarkets | 516 | 550 | -34 | -6.1% | 488 | 541 | -53 | -9.9% |
Retail customer traffic (million) | 105,234 | 91,900 | 13,334 | 14.5% | 385,130 | 324,866 | 60,264 | 18,6% |
Hypermarkets | 87,688 | 81,638 | 6,049 | 7.4% | 328,921 | 291,653 | 37,267 | 12,8% |
Supermarkets | 17,547 | 10,262 | 7,285 | 71.0% | 56,210 | 33,212 | 22,997 | 69,2% |
The average hypermarket retail ticket in the fourth quarter increased 0.9% to Rub 1,212, while LFL average hypermarket retail ticket increased 2.4%. The difference reflects the large share of stores in the ramp-up phase which are not included in the LFL panel. The average retail ticket in the supermarket format in the fourth quarter decreased by 6.1% to Rub 516 compared to a 2.8% increase in the LFL average retail ticket - as for hypermarkets, the difference reflects the large share of younger stores, which are not included in the LFL panel.
Total retail customer traffic increased by 14.5% in the fourth quarter of 2018 compared with the same period of the previous year, comprising 7.4% growth in hypermarket traffic and a 71.0% increase in retail traffic at Lenta's supermarket format.
During the fourth quarter of 2018, 20 hypermarkets and 16 supermarkets entered the LFL panel.
LFL retail sales growth of 2.1% in the fourth quarter consisted of LFL average retail ticket increase of 2.1% and stable LFL retail traffic. LFL food retail sales increased by 1.6% and LFL non-food retail sales by 5.5% y-o-y.
Quarterly | Year to Date | |||||
LFL sales growth 4Q 2018 | LFL average ticket growth 4Q 2018 | LFL traffic growth 4Q 2018 | LFL sales growth FY 2018 | LFL average ticket growth FY 2018 | LFL traffic growth FY 2018 | |
Lenta retail | 2.1% | 2.1% | 0.0% | 1.3% | 0.8% | 0.5% |
Hypermarkets | 1.8% | 2.4% | -0.6% | 1.3% | 0.9% | 0.4% |
Supermarkets | 7.6% | 2.8% | 4.7% | 1.2% | -0.4% | 1.6% |
Lenta continued to win new customers in both new and LFL hypermarkets and supermarkets - growth of number of unique customers outpaced sales growth. LFL retail sales growth of 1.8% in the hypermarket format was impacted by slightly declining traffic growth, which was offset by an increase in basket growth. Customer traffic in the LFL stores reduced as a significant increase in the number of new customers was not enough to outpace a slight reduction in visit frequency. LFL average retail ticket growth showed a substantial increase of 2.4% - to the highest level since the end of 2016 as continuous reduction in the average number of articles per basket combined with shelf-price deflation was compensated by further trading up effects.
LFL retail sales growth in supermarkets in 4Q 2018 improved to 7.6%, compared to 2.1% in the previous quarter and a decline in the first half of the year. Higher retail traffic growth of 4.7% was the key driver of improved LFL retail sales growth, largely as a result of tactical changes to the offering, including extension of the assortment and changes in marketing activities. LFL retail traffic growth in the format came at the highest level for the last two and a half years. LFL retail ticket growth improved to 2.8% despite continuous deflationary effects and was in a positive territory first time since the beginning of the year.
LFL retail sales growth of 2.1% in 4Q 2018 was therefore due to a combination of factors: an increase in LFL retail ticket growth in hypermarkets and supermarkets driven predominantly by trading up effects and growth of the number of new customers offset by slightly decreasing visit frequency.
Guidance
Guidance on hypermarket and supermarket openings as well as capex for 2019 will be published after the FY 2018 financial results announcement scheduled for 22 February 2019.
Annex 1. Total sales
1Q2018 | 2Q2018 | 3Q 2018 | 4Q 2018 | FY 2018 | 1Q2017 | 2Q2017 | 3Q 2017 | 4Q 2017 | FY 2017 | |
Total sales (Rub, million) | 93,445 | 99,775 | 100,756 | 119,493 | 413,468 | 77,944 | 85,587 | 89,555 | 112,092 | 365,178 |
Retail sales (Rub, million) | 88,324 | 93,396 | 95,069 | 115,337 | 392,126 | 75,601 | 81,876 | 83,903 | 103,665 | 345,046 |
Hypermarkets | 82,782 | 87,265 | 88,358 | 106,285 | 364,690 | 71,648 | 77,745 | 79,644 | 98,025 | 327,062 |
Supermarkets | 5,542 | 6,132 | 6,711 | 9,052 | 27,436 | 3,953 | 4,131 | 4,260 | 5,640 | 17,984 |
Wholesales (Rub, million) | 5,121 | 6,379 | 5,687 | 4,155 | 21,342 | 2,343 | 3,711 | 5,651 | 8,427 | 20,132 |
Retail average ticket (Rub) | 1,018 | 985 | 967 | 1,096 | 1,018 | 1,042 | 1,043 | 1,024 | 1,128 | 1,062 |
Hypermarkets | 1,089 | 1,066 | 1,060 | 1,212 | 1,109 | 1,091 | 1,098 | 1,083 | 1,201 | 1,121 |
Supermarkets | 516 | 472 | 449 | 516 | 488 | 571 | 540 | 508 | 550 | 541 |
Retail customer traffic (million) | 86,777 | 94,819 | 98,299 | 105,234 | 385,130 | 72,577 | 78,475 | 81,913 | 91,900 | 324,866 |
Hypermarkets | 76,034 | 81,838 | 83,362 | 87,688 | 328,921 | 65,651 | 70,831 | 73,534 | 81,638 | 291,653 |
Supermarkets | 10,744 | 12,981 | 14,938 | 17,547 | 56,210 | 6,927 | 7,644 | 8,380 | 10,262 | 33,212 |
Annex 2. LFL sales growth
1Q2018 | 2Q2018 | 3Q 2018 | 4Q 2018 | FY 2018 | 1Q2017 | 2Q2017 | 3Q 2017 | 4Q 2017 | FY 2017 | |
LFL retail sales growth | 2.9% | 0.6% | -0.6% | 2.1% | 1.3% | -2.5% | -3.5% | -2.9% | 0.4% | -2.0% |
Hypermarkets | 3.4% | 0.8% | -0.7% | 1.8% | 1.3% | -2.7% | -3.7% | -3.2% | 0.5% | -2.1% |
Supermarkets | -5.2% | -2.3% | 2.1% | 7.6% | 1.2% | 0.9% | 0.5% | 2.4% | -1.5% | 0.5% |
LFL average ticket growth | 2.1% | -0.9% | -0.3% | 2.1% | 0.8% | -0.7% | -0.8% | -1.5% | -0.4% | -0.8% |
Hypermarkets | 1.9% | -0.8% | -0.1% | 2.4% | 0.9% | -0.6% | -1.1% | -1.6% | -0.5% | -0.9% |
Supermarkets | -0.1% | -3.6% | -1.3% | 2.8% | -0.4% | 0.7% | 4.0% | 1.9% | 0.0% | 1.6% |
LFL traffic growth | 0.8% | 1.6% | -0.2% | 0.0% | 0.5% | -1.8% | -2.7% | -1.4% | 0.8% | -1.2% |
Hypermarkets | 1.4% | 1.6% | -0.7% | -0.6% | 0.4% | -2.0% | -2.7% | -1.6% | 1.1% | -1.2% |
Supermarkets | -5.1% | 1.3% | 3.5% | 4.7% | 1.6% | 0.2% | -3.3% | 0.5% | -1.6% | -1.1% |
About Lenta
Lenta is the largest hypermarket chain in Russia, and the country's third largest retail chain. The Company was founded in 1993 in St. Petersburg. Lenta operates 244 hypermarkets in 88 cities across Russia and 135 supermarkets in Moscow, St Petersburg, Central, Siberia and Ural regions with a total of approximately 1,467,482 sq.m of selling space. The average Lenta hypermarket store has selling space of approximately 5,500 sq.m. The average Lenta supermarket store has selling space of approximately 800 sq.m. The Company operates twelve distribution centres.
The Company's price-led hypermarket formats are differentiated in terms of their promotion and pricing strategies as well as their local product assortment. The Company employed approximately 45,759 people as of 31 December 20187.
The Company's management team combines a mix of local knowledge and international expertise coupled with extensive operational experience in Russia. Lenta's largest shareholders include TPG Capital and the European Bank for Reconstruction and Development, both of which are committed to maintaining high standards of corporate governance. Lenta is listed on the London Stock Exchange and on the Moscow Exchange and trades under the ticker: 'LNTA'.
A brief video summary on Lenta's business and its Big Data initiative can be seen here.
For further information please visit www.lentainvestor.com, or contact:
Lenta Mariya Filippova PR and GR manager Tel: +7 812 380-61-31 ext.: 1892 E-mail: maria.filippova@lenta.com |
Russian Media: NW Advisors Anton Karpov & Victoria Afonina Тel:+7 495 795 06 23 E-mail: lenta@nwadvisors.com |
Forward looking statements:
This announcement includes statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the fact that they do not only relate to historical or current events. Forward-looking statements often use words such as "anticipate", "target", "expect", "estimate", "intend", "expected", "plan", "goal", "believe", or other words of similar meaning.
By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances, a number of which are beyond Lenta's control. As a result, actual future results may differ materially from the plans, goals and expectations set out in these forward-looking statements.
Any forward-looking statements made by or on behalf of Lenta speak only as at the date of this announcement. Save as required by any applicable laws or regulations, Lenta undertakes no obligation publicly to release the results of any revisions to any forward-looking statements in this document that may occur due to any change in its expectations or to reflect events or circumstances after the date of this document.
7 FTE (full-time equivalent). Average FTE for FY2018 was 43,283 employees