Koninklijke Ahold Del Ord

Ladies and gentlemen, good morning and welcome to the analyst conference call on the first quarter 2024 results of Ajo del Herza. Please note that this call is being webcast and recorded. Please note that in today's call forward-looking statements may be made. All statements other than statements of historical facts may be forward-looking statements. Such statements may involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those included in the statements. Such risks and uncertainties are discussed in the interim report, first quarter 2024, and also in Ajo del Herce's public filings and other disclosures. Ajo del Herce disclosures are available on ajodelherce.com. Forelooking statements reflect the current views of Ajo del Herce's management and assumptions based on information currently available to Ajo del Herce's management. Forelooking statements speak only as of the date they are made and Ajo del Herce does not assume any obligation to update such statements, except as required by law. The introduction will be followed by a Q&A session. Any views expressed by those asking questions are not necessarily the views of Ajo del Herce. At this time, I would like to hand the call over to JP O'Meara, Senior Vice President, Head of Investor Relations. Please go ahead, JP.

Thank you very much, Sharon, and good morning, everybody. I'm delighted to welcome you today to our Q1 2024 results conference call. On today's call are Franz Muller, our President and CEO, and Yolanda Putzbeil, our CFO. After a brief presentation, we will open the call for questions. In case you haven't seen it, the earnings release and the accompanying presentation slides can be accessed through the investor section of our website, aholdeles.com, which also provides extra disclosures and details for your convenience. As always, and to ensure everyone has the opportunity to get their questions answered today, I ask that you initially limit yourself to two questions. If you have further questions, then feel free to re-enter the queue. And to ensure ease of speaking, all growth rates mentioned in today's prepared remarks will be at constant exchange rates unless otherwise stated. With that, I hand the call over to Frans.

Thank you, JP, and good morning, everyone. I'm pleased to report a stable first quarter, placing us well on track to reach our goals and aspirations for the full year. 2024 is an important year for our company as we pivot to our refreshed strategy which are very much looking forward to unveiling in two weeks' time. As we tee up for this next phase of our journey, we are working hard to ensure we are fit and ready to transition to a more robust growth profile. On that front, three areas in particular drive much of our operational agenda for this year. First of all, our relentless focus on the customer, our price positioning and assortments, and leveraging the strength of our great local brands. Secondly, further, the simplification of our organization to sustain growth investments and drive innovation. And as always, continue to be laser focused on cost control and cash flow delivery. So let me briefly step into the first two of those, and Jolanda will cover the third as we reflect on the first quarter. Although inflation is stabilizing in our markets, the price value equation continues to be of utmost importance to our customers as household budgets remain tight. Therefore, our brands have been very active delivering great value, quality, and savings to customers, creatively using the full spectrum of our brand assortments and omnichannel toolkits. In the US, one example of this is at Giant Food. which has lowered prices on hundreds of its private label items and has expanded its flexible rewards loyalty program to include double points on giant brand items purchased. Stop & Shop is partnering with the state of Rhode Island to pilot its governmental SNAP program called Eat Well, Be Well. This program is the first of its kind in the U.S., providing SNAP recipients with up to $25 per month in additional financial incentives for purchasing eligible fruits and vegetables. And in Europe, at Albert in the Czech Republic, active users of the MyAlbert app now receive a 15% discount on organic food and Nature's Promise healthy products. This is the third European brand that rewards customers for choosing healthy products, following the Deleuze Super Plus and Albert Heijn premium programs. Moving to the second area of our agenda for 2024, the simplification of our organization. Unlocking the benefits of prior year interventions and building off the additional cost plans we put in place, they are delivering good results, and we can see with the consistent margins we delivered in the first quarter. The largest of those simplification initiatives was the Belgium future plan. One year into the plan, the Deleuze team are making great progress with many key milestones already achieved. In February, the team finalized agreements to franchise all of the 128 owned operated stores. And to date, 76 stores have already transitioned to the new owners. And we are on a good cadence to complete the transitions in the second half of the year. From those stores already transitioned, the results are very promising, with store sales, customer frequency, and basket size all trending upwards. In the US, we made a major move in the first quarter to streamline our support brands into one Ahold de Les USA support organization. This shift will bring all support organizations together to seamlessly partner with the five great local brands, so they can do what they do best, namely be the trusted local grocer in their markets and accelerate omnichannel growth. JJ Fleeman will share more on this and our vision for growth in the US at our upcoming Strategy Day. In addition, our decision to orient our online fulfillment capabilities towards more efficient, less asset-intense same-day delivery models, such as Click and Collect, is really paying off. Our online sales in the U.S. grew 5% year-over-year in the first quarter on a like-for-like basis, fueled by new customer growth as well as strong retention of existing e-commerce customers. We continue to make steps to further improve our e-commerce performance, driven by, first of all, labor efficiencies and cost rationalizations in all channels, transitioning from lower efficient fulfillment centers to our flexible store-first network strategy. And the launch of our partnership with DoorDash is already off to a strong start with 1,800 stores across all five brands now live with the DoorDash marketplace. The partnership is bringing new customers, which are primarily convenience shoppers that are typically purchasing smaller baskets but looking for a faster delivery time for an immediate need. Slide number 10. Driving more growth and leverage from our online capabilities is also a top priority for our European teams, as we should benefit from increasing demand and new external relationships. One such aspect of the online experience that we are developing is an innovative proposition for business customers, with the ambition to offer quality and accessible services to a wide range of companies at an affordable price. At Albert Heijn, The brand has entered into new B2B relationships with large childcare services and healthcare providers, including Holland Food Service, a leading partner for care facilities. And they have also started offering all business customers a standard 10% discount on all organic and Albert Heijn Terra products. And Terra is the Albert Heijn's fully plant-based, own-brand product line, as we extend our health and sustainability ambitions from the home to the workplace. And remember, our omnichannel customers are on average two times more valuable. Driving healthy sales is a key selling point and one of our most important long-term ambitions. We are leaders in healthy product innovation, and it's amazing the things that still can be achieved in product formulation. For example, in 2023, Albert Heijn reduced 150 million sugar cubes, 62,000 kilograms of salt, and 275,000 kilograms of saturated fat from their own brand products compared to the previous year, 2022. And to enable customers to access more fiber-rich foods, Albert Heijn also increased the number of wholemeal breads on the shelf while keeping the price similar to that of the white variety. In terms of innovation on a broader scale, two other initiatives I want to highlight. Our participation in the Global Retail Innovation Fund, called W23 Global, and the launch of our new tech studio in Bucharest called AD01. In April, we announced that Al DeLess has joined forces with four other leading grocery retailers and have established W23 Global, a collaborative venture capital fund to accelerate innovation across the grocery retail ecosystem. The focus of this fund will be on investing in globally scalable tech-led innovative transforming retailing and addressing common ESG challenges. We also launched a new tech studio in Bucharest, Romania called AD01. The first talents are currently coming on board and the plan is to have around 250 top talents involved in this tech studio within the next few years, while fostering a vibrant, inclusive engineering culture. They will work together on innovations with the aim of providing leading customer experience at all the last European brands. You will hear much more on these at our Strategy Day on May 23rd, and I look forward to welcoming many of you in person to the great city of Zaandam. Now over to Yolanda to talk more about the financials.

Thank you, Frans, and good morning to everyone. Our performance in the first quarter once again highlights that we are a resilient company with a portfolio of strong local brands in both the U.S. and in Europe, allowing us to deliver a consistent set of results. Overall, inflation rates have moderated in the U.S. and have come down rapidly in Europe, impacting our top line. At the same time, we're still battling the cost inflation impacts in the center of our P&L. Looking at our financials for Q1, we've managed this inflation imbalance well as we tightly manage our costs and actively look to drive leverage as volumes begin to improve. Getting to the key underlying numbers for the quarter as shown on slide 13. Net sales grew 0.4% or in constant exchange rates, 1.3%. to €21.7 billion. This was negatively impacted by the divestment of FreshDirect and the cessation of tobacco sales in our own operated supermarkets in the Netherlands. Group comparable sales growth was 1.6%. Group net consumer online sales decreased by 1%, negatively impacted by 5.7 percentage points from the divestment of FreshDirect. This was offset by double-digit growth at Foodline, Hannaford and Arbutham. Group underlying operating margin was 4%, in line with the prior year. Improvements in our European performance were offset by modest declines in the US. GSO insurance results were comparable to the prior year. Diluted underlying earnings per share were 59 euro cents, down 2.9%, primarily driven by foreign exchange rates, higher financial expenses, and income taxes. Slide 14 shows our results on an IFRS reported basis for Q1. The difference versus our underlying figures are mainly due to the cost from our future plan in Belgium as we transition stores to their new owners. On slide 15, you see comparable sales growth by region, including and excluding weather, calendar, and other effects. This shows we experienced a positive effect from calendar shifts of one percentage point in the US related to the timing of Easter and New Year's Eve. In Europe, there was around 50 base point negative net impact due to various factors that I will shortly explain. In the US, net sales were 13.3 billion euro, down 0.6%. Net sales were negatively impacted by €158 million from the divestment of Fresh Direct. Storm growth in pharmacy was offset by the non-recurrence of emergency SNAP benefits, the moderation of inflation rates, and lower gasoline sales. Our online sales in the segment declined 10.1%, negatively impacted by 14.8 percentage points from the divestment of Fresh Direct. This was partially offset by double-digit growth at Food Lion in Hannaford and the positive contribution from our new partnership with DoorDash. Underlying operating margin in the U.S. was 4.6%, down 20 base points from the prior year due to higher shrink and higher labor and higher service costs, which was partially offset by the margin-mix benefit from the divestment of FreshDirect. In terms of brand momentum, Food Lion's impressive performance continues, with now 46 consecutive quarters of comparable store sales growth. Our omnichannel remodels are really paying off for the brand. The Wilmington and Greenville markets are delivering fully against expectations, and we are excited that the Rally Market remodels are well on track to complete 167 store upgrades later this summer. Turning now to Europe. sales were 8.5 billion euro, an increase of 4.6%. This was due to the positive impact from comparable sales growth of 2.8% and the net opening of new stores, including the conversion of Jan Linder stores. Europe's comparable sales growth figure includes a negative impact of 1.9 percentage points from the end of tobacco sales at our own operated supermarkets in the Netherlands as of January 1st. a positive impact of 0.8 percentage points from the timing of Easter, and a positive impact of 0.7 percentage points from the cycling of the strikes in Belgium in the prior year. Going forward, it is important to realize that our net sales will be negatively impacted when our own Delhaize stores are converted to affiliates. In that case, we will no longer account for the sales to the end customer, but only the sales to affiliates. At Ball, which celebrated this quarter its 25th birthday, gross merchandise value, excluding VUT, was €1.4 billion, up a modest 1%, growing over-proportionally with our first-party sellers. Ball started the year strong in a market that continues to show limited overall growth. We continue to see strong growth in value-added services, such as advertising and logistics, which grew 30 and almost 10% for the quarter, respectively. The underlying operating margin in Europe was 3.2%, up 0.3 percentage points. We benefited from a performance recovery in Belgium, in part due to cycling prior year strikes and lower energy costs, which were partially offset by higher wages and an increase in the non-CAS service charge for the Netherlands employee pension plan. Moving on to slide 19, Q1 free cash flow was 377 million euro, which represents an increase of 356 million euro compared to Q1 2023. This was mainly driven by a positive contribution from working capital, largely due to the timing of holidays and lower net investments, as divestments were 129 million euro higher than prior year. The latter is primarily related to the sale of two U.S. meat processing facilities. In March, we successfully priced a €1.6 billion multi-trans transaction, including a €500 million seven-year green bond and a €700 million 12-year sustainability-linked bond, with each tranche very well received and multiple times oversubscribed. At the end of April, we issued our Green Bond Impact and Allocation Report, providing insights in how we used the proceeds from the €500 million Green Bond issued in 2023. The largest portion we allocated in green buildings and energy-efficient categories. For example, Albert Heijn's newest state-of-the-art home shop center for our online business has a fully gas-free infrastructure and more than 5,400 solar panels and energy efficient solutions. This wraps up my financial review of Q1 and brings me to our outlook. Given the solid start of the year, we reconfirm our guidance for 2024. I'm confident that we have a strong foundation to deliver on our commitments for this year, and we are ready and energized as we gear up for our next phase of growth. And I look very much forward to welcoming many of you to our 2024 Strategy Day on May 23. For those wishing to attend in person, today is the last day for registration and there are only a few spots left. For those wishing to follow the live webcast, you can sign up via our website or by scanning the QR code on this slide. It will be an eventful few days during which you will see some of our impressive facilities and you will hear from our leaders and associates on our plans for the future in both the U.S. and our European businesses, as well as a few special deep dives from group-wide initiatives. With that, I'd like to thank you for tuning in, and operator, please open the lines for questions.

Thank you. To ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A queue. We will now go with our first question. One moment, please. And your first question comes from the line of Sridhar Mamakali from UBS, please go ahead. Hello Sridhar, is your line on mute?

Hi, good morning, can you hear me?

Loud and clear.

OK, thank you and thanks for taking my questions. A couple of questions please. In France, you've touched on one support organization in the U.S. I'd be very interested in knowing what is changing and what does that mean to the operating companies. Secondly, you've talked about more robust growth profile. Can you elaborate a little bit? Do you actually score growing footage, number of stores, role of M&A, or is it Man, you're just referring to accelerating ComStore sales growth only. Perhaps these two are to be discussed in a lot more detail on the 23rd, but any early thoughts will be very helpful. Thank you.

So, Frida, thank you very much for the two questions. You almost gave already the answer on the second, namely we see each other on the 23rd of May when we'll talk more about growth in general.

We hope to welcome you anyway.

Yeah, hopefully, Frida will be there, but... It's also the same type of mantra as we always have. We fight for same store sales growth on the same square meters as the first priority, being the most profitable sales we have. But we also will talk more about our growth profile when we talk about channel, when we talk about other plans we have in mind to excite and inspire our customers. On the U.S. The support organization, you might remember that we had a retail business services organization, RBS, and then people digital labs organization, PDL. And we brought all the organizations together in one overall service company. And by doing so, we got, let's say, efficiencies because those service companies, and there were more than two, were also supported by an HR organization, by a finance organization and these kind of things and we brought them now together and we see first of all immediately synergies there. The second thing which is important as a strategic direction is that we would like to put the great local brands with their strong teams fully into the ownership and position to with their own personality of their brands and may do the best thing customer facing in their markets where they are strong. But we also would like to support them from a more central base with supply chain, with IT, with digital, with HR administration and a number of those initiatives where we can do this in a much more efficient way when we support that also from the center. So we will get more support to the brands in a centralized way, but also get our centralized functions more efficient. And JJ Fleeman will share with you more on the 23rd of May what we have in mind and what this so-called Project Cinnamon is meaning for us also in cost efficiencies. But in the end, we would like to get faster to market. In the end, we would like to support our brands in a better way. And you'll hear him also talking about private labels, for example, which will be another topic. like AI and like the people components and the community components, those will be the deep dives in our strategy here in the Netherlands. And then you also will hear more about the support functions, what their role will be, both in the U.S. and in Europe.

Thank you. While I have it very briefly, in terms of the U.S. banner performance, anything you can add on stock and shop and giant companies, please? You've referred already to... Foodline and Hannaford are being interested in hearing what the performance was like in Q1. Thank you.

That's a little bit of an unchanged scenario, Sridhar. We are very happy with the overall performance of our AD USA business, but we shared with you before that we are not content yet with our performance of Stop and Shop. We did a lot of things there and the team did a good job in remodeling more than half of our stores already. So that is going in the right direction and those stores are performing well. But there's more to do there on the stop and shop total company and that's what I announced already earlier will be an important topic on the 23rd of May too. The other brands leaders in their markets. Happy to comment more on that on the 23rd of May, but we're quite content with their performance.

Thank you.

Thank you. As a reminder, please limit yourselves to two questions. We will now go to your next question. And your next question comes from the line of James Anstead from Barclays. Please go ahead.

Yes, good morning, Franz, Yolanda. My two questions. First of all, on US comp store sales, if we look X weather and calendar, then you've had two quarters now of minus 0.5%, so things have stabilised. The question would be with the snap effect more or less dropping out in the next quarter, are you confident that if business overall in the US should be returning to positive comps in 2Q? That would be the first question. And then, sorry for asking a slightly technical one, but on European online sales growth, there's quite a big gap opening up between total online sales growth and net consumer online sales. The gap's been widening over recent quarters. I presume that's something to do with third-party sellers and how those sales are registered. But my interpretation would be that third-party sellers are seeing much less rapid growth. But that didn't seem to tally with what Jolanda said on the call, if I heard correctly. So I don't know if you could just explain that gap. Thank you.

Thank you, James, for both questions. Jolanda will pick up the second one. Let me say a few things to the first one. If you look at the total development in the first quarter, when we talk about volumes and when we talk about the consumer sentiment, then I think it's right that you picked up, and Jolanda mentioned this already, that it was the last quarter where we still, compared to last year, we had a comparison with the SNAP sales. We discussed this earlier. That is a 4% effect on our sales numbers. We'll be out in the second quarter in comparison. The second thing is that we see in the first quarter positive trends in volume in our brands, in all our brands, by the way. And we have a couple of brands which are already in positive volume territory. This has to do with the fact that not only us as a retailer, but also our vendors, our manufacturers, are looking forward to a positive volume growth. And we see further investments from their side in the trade funds too. That's where we see the investments. That's where we see the volume trends. And to make the link with Europe on volumes, just to maybe be ahead of one of the questions coming later, in Europe we see overall a positive volume development for Europe as a total geography. and we also see there positive volume trends for the same reason why we see this in the U.S. Vendors invest more promotional money, trade funds go up, and we're almost in the U.S. at trade funds levels of pre-COVID, which is a good sign. I think we indicated this already in the last quarter that we see those trends moving. So that's the reason for volume. That's the explanation for SNAP. And that's the outlook for the year. where I said earlier, we said earlier as a company, that by the end of the year, I expect that we have positive volume developments in both Europe and the U.S.

Okay, the second question. Well spotted, indeed, that online sales is developing at a higher pace than net consumer online sales, and the in-between is indeed the third-party sellers. So in my part of the introduction, I already mentioned that especially the first-party element in there is developing more positively than the third-party sellers, and that is mainly related indeed to Bol.

So just to follow up on that, is that an active decision by Bol to, I don't know, change its commercial terms or emphasize it? First-party growth, is that deliberately or? No.

It's a softer market. It's not just.

So, James, if you look at BOL as a platform, then the third-party sales is roughly 60% of the total volume. That's one thing. And the first-party is the 40%. First-party is growing for BOL, and third-party is at the moment a little bit more challenged. But that's a much wider group of 50,000 traders on that platform, and they compete. And like you know, there's also a little bit more on the Chinese imports as well in the European Union. So we support those sort of third-party traders with a lot more extra tools and elements, like advertising, like logistics. And it's Bol's plan to support those third-party traders even more also for the future because They support us so well, and in total we have a 14 million number of items on the platform. So there's no intent. The intent is to have an even stronger relationship with the third-party sellers by offering them more services. But the market is just competitive, and the market is soft. Overall, Bol is gaining share. And we also do very well in the Dutch market, but it's not an easy market in the Dutch-speaking Belgium and for Bol itself. One other nice data point also, just to make the online total in perspective, if you look at our online grocery sales, which is not necessarily full, we grew by 10% in the quarter. So that is a nice data point that also on the grocery sales in Europe, we grow above market and we also gain share there. And of course, it is mainly the Dutch and Belgian market.

That's very helpful. Thank you.

Thank you. We'll now take the next question. And your next question comes from the line of Isabel de Brova from Morgan Stanley. Please go ahead.

Hello, good morning. Thank you for taking my questions. My first question is going back to the US business and I wanted to follow up a little bit on the first direct disposal. So I understand the business was loss-making, so there is a mechanical mixed positive impact on the margin. But beyond that, could you comment a little bit whether there is any scope for additional savings? So was First Direct using any part of the existing logistics chain, and maybe now there is some unused capacity that you can save money on? Or was it kind of really ring-sense and the only benefit you get is a saving on the losses? That's kind of my first question.

Thank you for that question. The impact of FreshDirect on our first quarter was 15 base points. So it's, you know, the margin in the U.S. was hit by a few elements that offset each other. More or less we had increased shrink, we had increased services, we had the upside of FreshDirect, and of course we're facing higher labor costs in general.

FreshDirect, Isabelle, is a standalone business. and was a stand-alone business and is still a stand-alone business. So we have some minimal transition services we give to the new owner of Fresh Direct, but it's a stand-alone business in itself, and there's no link to our logistics or there's no impact on ADUSA, let's say, connected to the sale of Fresh Direct.

Okay, thank you. And then my other question was going back to Profibrom as you're close to consolidating the deal. I was wondering, can you give us more color on the financials of the transaction and what level of synergies you're now targeting, how that fits between cost and revenues, and any kind of financial color on the KPIs you'll be using to measure the success of the transaction going forward?

Isabel, the... The transaction is with the authorities in Romania in the meantime, but the RCC, the Competition Committee in Romania, and it's in their hands at the moment, so we will not further comment on the financials apart from the things we already have shared with you earlier. And we expect an outcome in the second half of this year.

And then we will also be able to disclose a bit more.

Sure, when we have approvals and we know exactly where we will be timing-wise, then of course we will give a lot more to Isabel, but at the moment we stay with the numbers we released so far pending authorities' approval.

Okay, thank you.

Thank you. We will now take the next question. And your next question comes from the line of Clément Genelot from Brian Garnier & Co. Please go ahead.

Thank you and good morning to all of you. Two questions for myself. The first one is regarding the guidance. So with Q1 modeling being flat, is it

Let me take the first one, and thank you for that question. We have, based on the solid first quarter, we have reiterated our confidence in the outlook as we provided before, so no changes in there. We stick to the 4% at least margin, the $2.3 billion of free cash flow, and the earnings per share in line with last year. So no new insights in that perspective. The second question, Santi, we'll take it.

Yeah, one second. Okay, sorry, I had to understand a little bit the question clearer, but I understood it now. Sorry for that. So we proudly shared with you that we improved our private label attractiveness by adding items and also adjusting here and there price levels. This will have no impact on the margin profile of Giant Food as such. Because we see that with private label, we increase attractiveness of the total portfolio. We make sure that customers are staying with us. And also we see, of course, bigger baskets coming out of this. So that is compensating for potentially more attractive prices. Private label margins, in general, have a higher profile than most of the national brands have.

Thank you. We will now go to the next question. And your next question comes from the line of Robert Jan Vos from ABN AMRO OdoBHF. Please go ahead.

Yes, thank you, operator. Good morning all. Yeah, I have two questions on Europe. To what extent will the cycling of the strikes in Belgium still have an impact on second quarter growth and profitability in Europe? That's my first question. And my second question, I remember that you once said that there's no reason why Europe should not move back to around 4% profitability. Do you still think that? And can you remind me what timeframe you roughly envision for that to be achieved?

Thank you, Robert-Jan. Yeah, your memory is 100 percent correct. And I always said earlier, and together with the team here we said earlier, that for Europe we will return to four levels, too. And we are – yeah, we are trending towards that. will not be in the 2024 year, so that we don't have misunderstandings there because we still have some Belgium effects to cover. But 2025 and beyond, we'll get closer to those numbers. And we're trending very nicely in the right direction. And you see the recovery already now with 30 basis points in this quarter. So for me, there's no reason to doubt that that 4% number will come for Europe and then We are also a 4 percent company in the European geography. For the first question.

Yeah, I don't think – of course, indeed, the strikes had a positive impact in Q1 on the European margin of 55 base points, but there are a lot of elements – other elements driving that margin. And relating to Frans' answer, we are going towards that. We are on the recovery to a 4% also in Europe, and we expect 25% onwards to see that fully, and we will see that trend throughout the year, despite the strike support we had in Q1.

Very positive trends, Robert-Jan, on the sales numbers. 76 stores converted, that is 60% of the 128. The remaining stores in the remainder of the year coming in. good connections with our social partners, good connections with our associates in the converted stores. And we are very optimistic about the results of those stores, what I mentioned earlier. And you see that the entrepreneurial spirit, the strength of the Deleuze brand, The Sunday openings and these kind of things all help to get to that positioning where we are. And at the same time, we, of course, simplified our model for Deleuze because we only will have, by the end of the year, only one business model, one operating model there with a fully affiliated slash franchised business. So very positive, great job done by the Belgian team. A tough ride, but I think we're now in a very good space.

All right, that's clear. Thank you.

Thank you. We will now go to the next question. And your next question comes from the line of Mikhail Deklyak from KDC Securities. Please go ahead.

Hi. Yes, thanks for taking my question. My first question would be on the US and the the shrinkage that you still mentioned. I was just wondering, this is, of course, a bit of more shrink than the first quarter last year. However, you also had some shrinking Q3 and Q4. I was just wondering how this compared to the Q4, for example. And you mentioned in the previous calls that you had taken some action. So I just want to know if this is bearing some fruits. So that would be my first question. And then the second would be on Europe and the tobacco sales. So already almost 2% impact in the first quarter. I expect this to accelerate a bit maybe in the second half. But I was just wondering, does this have any side impact on the footfall and maybe people who come for tobacco and also take something else for the store, and if you see any impact from that. Those would be my two questions, please.

Let me start with the tobacco. That is not my favorite subject. I'll leave the first question to you on the shrink in the U.S., and we can support each other there to give the best color to Michel. Tobacco sales, you're right with the effects on the sales numbers, what you just shared with us. We see no negative effect on footfall. We see also that Albert Heijn is gaining market share in the Dutch market. And it will be completely level playing field by the 1st of July, because then all the supermarkets are not allowed anymore by law to sell tobacco, and tobacco in the wider definitions, including the vapes and all these kind of things. So by the 1st of July, we will have 100% level playing field. Albert Heijn went early on the 1st of January, no negative footfall effects, which is very promising because if the level of playfield kicks in, then I think we're already well positioned and prepared. So that's on the tobacco. Then on the other effect on shrink, Jolanda, would you like to take a bite on that one?

On the shrink, yes. Well, Q&Q, the shrink impact was 20 base points in the U.S. But if we look at the fourth quarter of the year, going to the Q1 quarter of this year, it didn't get any worse. So you see that the measurements that we're taking have a positive impact.

In Europe, we took also a number of measures, especially in the Western European markets, and there we really saw a shrink going down. Then you talk about, we all know, A number of us know in the Dutch and Belgium supermarket environment, we have quite some checkouts, self-checkouts. So we installed new technology there, new algorithms, different way of conversing with customers on checking the purchase based on the algorithms. We have more protection on the items as such. And we have a comparable 8 to 10 action item list in the U.S. too, and those are getting rips now. So in Europe, we are a little bit further already. In the U.S., we see a positive trend. We stabilized so far, and we work further more to decrease that number as well, which is an industry phenomenon, by the way. And so far, all stores are there, all departments are open, but you might have seen that and some of the retailers in the U.S., on the west coast of the U.S., that some closed their stores or closed aisles in stores. That is for us not the case. We have a full assortment on offer, and we work furthermore to reduce that number. But to stabilize so far is not getting worse.

Very good. Thank you.

Thank you. We will now take the next question. And your next question comes from the line of Frederick Wilde from Jefferies. Please go ahead.

Good morning, Pram Zyanda and JP. Thanks for taking my questions. I will save the big strategic ones for the CND, so two small ones now. First, thank you for those comments on the shrink cadence between Q4 and Q1. Would you also be able to describe a bit about how the consumer patterns have been changing, maybe trading down private label, etc. That would be super helpful to get some colour on that. And then secondly, a more technical one, the Easter impact in Q1. Could you quantify how much of that will unwind in Q2, both from a sales and margin perspective as we start to put those in our models?

Thank you.

On private label and customer behaviors and sentiments. I think we discussed this topic earlier and we got stronger over time. What does that mean? That we would like to make sure that if customers have challenged household budgets, that they can buy food healthy, sustainable, and affordable in all our stores. in every week of the month, so to say, depending on the budget. So both in the US and in Europe, we work strongly on more promotions, on more offers on the right timing, on personalized offers. We got, by Newsweek, the award for the best loyalty system in the US. So we invested a lot in the path on loyalty system and hyper-personalized offers. So that's why we can be much more pointed to customers on value, but also in specific offers when we talk about diets and preferences and so on. So you will see, and you see in the U.S. and in Europe, a growth of our private label share. And what we've tried to do, of course, is that we try to avoid that customers are leaving us as a supermarket brand because they would like to find some items, for example, value outside our stores. And that is, we would like to make sure that customers can deal with their basket and can deal with the budgets in our stores. So that's why we see we are not completely satisfied with that development and that opportunity at the Stop and Shop brand. We talked about it earlier, and we talk indeed on the 23rd of May more about this, Frederik. But for example, in the Dutch or the Belgian stores, we see increased private label sales. We see a number of price entry items going up by 17% in the Dutch market, by 23% in the Belgian market. So you see that the first price product is coming more in our stores, and we see also that the participation by customers is going up. Promotion shares we see going up too, because we would like to make sure that customers get the good deal. Those promotion shares are supported by our suppliers with the same things to grow volumes. So, so far so good. I never like trading down terminology because our private label products are sensationally good quality, price quality products. So for me, it's maybe trading sideways at best. But we're doing a good job there. For example, the Albert Heijn brand does not lose any customer and is gaining market share. And in Belgium, just to take that opportunity, in Belgium, we get, with the last Belgium, after this intervention, back to our pre-intervention market shares. And there's all reason to assume that we'll grow our market share in Belgium with the positive news I shared with you before. And let's not forget that in the Dutch, in the Belgian market, we also have an Albert Heijn brand, very successful there, both in market share gains, but also in profitability. And we have also a very successful Bol brand on the Dutch speaking part of Belgium too. So a three brand strategy there And we're quite happy with market share development, but also to offer customers the best value given the sometimes challenged household budgets.

Okay. And thank you for your other question, Frederik, as well, the Easter impact. As I said in my introduction, the Easter impact on Europe was 80 base points. In the U.S., it's a little less because in the U.S., we also had the impact of New Year's Day in that graph. On margins, we don't disclose the impact of Easter and New Year's Day, so that's limited there.

Great. Thank you very much.

Thank you. We will now go to the next question. One moment, please. And your next question comes from the line of Emanuele Vigneron from HSBC. Please go ahead.

Yes, hi. Thanks for taking my questions. I have a quick one regarding the level of promotions in the US and in Europe. Could you please give us the level of promotion and if there is any change in trend? And my second question is regarding VOD.com. What is currently the market share in the Netherlands and which is the the closest competitor of Pol.com in the Netherlands. Thank you.

So, Yolanda, I will take the ball question, and thanks for being with us, Emmanuel. On promotion levels, I think we can say two things. I think without exception, in all brands, promotion shares go up. But those are funded by the vendor community, by the manufacturers. And those promotions get, of course, smarter in a way that they get more effective, but also more digital and more personalized as well. And if you look at your bonus box or if you look at your individual bonus offers, for example, at the Albert Heijn brand or your specific promotions on healthier food at the last brands, Or you look at all the type of deals which Stop and Shop has developed in the last four or five months to make the brand more price-attractive. We see also nice traction there. So promotion levels go in general up, supported by the manufacturing industry to drive volume. And the more and more we try to make it more personalized through our loyalty and data availability, and that's of course the heavy investments we've made in the last couple of years.

And Emanuele, on your question around Bull, we're very proud that Bull was able to gain market share in the last quarter, 50 base points up, and their total market share is in the high teens, as we say.

And that is, I think, JP, but of course this is not typical, an IR type of remark, but that is Roughly more than double our second contender in the marketplace. Sounds about right. We're competing very well against the number two in the marketplace, which is also a big tribute to the whole team. They do an excellent job there.

Thank you. Thank you. We will now go to the next question. And your next question comes from the line of Fernand Boer, Digrof Petercam. Please go ahead.

Yes, good morning. It's Fernand Boer from Digrof Petercam. Two questions my side. Jolanda, in your prepared remarks, you mentioned the impact of Belgium moving to French ICs on the sales line. Could you quantify it a little bit? Because I thought that was already the case also in Q1. And then on your guidance on EPS, you were minus 2 cents in the first quarter, but you stick to abouts, where actually the comparison base, certainly in the U.S., with SNAP behind, et cetera, becomes more easy. What keeps you away from becoming more positive on this about EPS growth?

So I think both are for you, Yolanda. So the EPS guidance and the first question.

Well, the impact, the first question, and thank you, Fernand, for asking. The first question on the franchisee transformation is on an annual basis 70 base points? And your second question, well, your second question, the line was a bit slow, but I think your second question was why we didn't improve our guidance or are more specific on EPS. Was that the second question?

Yes, because I think we're certainly a step behind in the U.S. So the comparison may be becoming easier. Belgium making progress. I have a feeling there is some room in the EPS growth compared to last year instead of about.

Well, thanks a lot. You know, the current EPS outlook is around, and we stick to that one. And bear in the back of your head, EPS is also touched by AVEX. That was one-third of the explanation of the deviation of EPS versus last year in the first quarter. And we also have to deal with higher interest rates and a somewhat elevated tax level. So that's also elements that determine the EPS that we will achieve this year. Okay. Thank you. You're welcome.

Thank you. We will now take our final question for today. And your final question comes from the line of Francois Degas from Kepler Chauvre. Please go ahead.

Good morning. Thank you to take my questions. I have two, if I may. The first is about in the U.S. margin of stop and shop investments weighted negatively. to the U.S. operating margin, or maybe was it simply that it was the same level of investment that last year, Q1, but if you could highlight the impact, that would be very helpful. And the second is about free cash flow. To what extent the increase is simply linked to calendar effects, and how we have to figure out that for Q2. Thank you.

Can you take the second one already now, Yolanda?

Yes, of course, of course. So we'll start with the second question on free cash flow, and thank you for asking, François. The free cash flow upside in this quarter was indeed related to, at one point, to working capital, and that was largely related to calendar. We had, for example, a major impact, lower inventories at the end of the quarter because of a good Easter. So that's a temporary effect. And the other impact was, of course, the divestment of the beach facilities in the first quarter.

And the first question, in the wrong sequence, but the first question, I understood that the price investments in Stop and Shop, like we said, with a number of different promotional strategies, does it have a negative effect on our total profitability of 80 USA? The answer is no. And there's always a balancing out these kind of things because you get margin uplift but you also get more traffic and you get more bigger baskets and you get a different participation in your private label brands as well. So all those profiles, all those margin mix elements together means for us that we don't have a negative effect on the price investments and the work we do at Stop & Shop.

of percentage, but not in margin. I'm correct?

That's correct. Yeah. Yeah. And we hope to have, of course, a positive effect on sales. I mean, that's surprising. So that's what we what we're going to discuss with you guys on the 23rd of May. If you make it to the Netherlands, Francois, but we would like to grow the business of stop and shop like for like, we would like to grow our market shares like for like with stop and shop. and we have a number of strategies there, and private label is one, and price competitiveness, and loyalty, and promotions in the mix. So we're going to share more with you about this, but we would like to grow this business store by store, and we would like to also grow sales and profitability over time. Is that okay for you? Is that clear for you?

Yes, yes, perfectly clear.

Thank you very much. Okay.

Thank you.

Operator, thank you very much. I think we've reached the top of the hour for today. So that concludes our call. As Yolanda mentioned, today is our last day for physical registration for people willing to and looking to come to the Netherlands for our strategy day. So anyone who hasn't registered yet, please reach out to the team today to do that. And we're very much looking forward to having you guys here for the couple of days, May 22nd, 23rd. And we'll see you out on the roads tomorrow.

Yeah, we're working very hard as a team to make it a good use of your time, and not only during the meeting itself, the four hours, but we also have a sustainability session specifically, and we also show you around more of our businesses as well. That's the plan, right? Yeah. All right. Good.

I'll see you then. Thank you. Bye-bye.

Thank you, Sharon, operator. Thank you very much.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.