Koninklijke Ahold Del Ord

Ladies and gentlemen, good morning and welcome to the analyst conference call on the first quarter 2025 results of Aho Delhaes. Please note that this call is being webcast and recorded. During this call, Aho Delhaes anticipates making projections and forward-looking statements. All statements other than statements of historical facts may be forward-looking statements. Forward-looking statements are subject to risks, uncertainties and other factors that are difficult to predict and that may cause our actual results to differ materially from future results expressed or implied by such forward-looking statements. Therefore, you should... not place undue reliance on any of these forward-looking statements. The introduction will be followed by a Q&A session. Any views expressed by those asking questions are not necessarily the views of our hotel heads. At this time, I would like to hand the call over to JP O'Meara, Head of Investor Relations. Please go ahead, JP.

Thank you very much, Erin, and good morning, everyone from Zendam. I'm delighted to welcome you to our Q1 2025 results conference call. On today's call are Franz Muller, our president and CEO, and Yolanda Putzweil, 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. To ensure everyone has the opportunity to get their questions answered today, I ask that you initially limit yourself to two questions. I'll just repeat myself again. Two questions, please, to make sure everyone on the call would have sufficient time. If you have further questions, then feel free to re-enter the queue. To ensure ease of speaking, all growth rates mentioned in today's prepared remarks will be at constant exchange rates unless otherwise stated. And with that, friends, I'll hand the call over to you.

Yes, thank you very much, JP, and good morning, everyone. At the heart of our growing together plan and our growth model is our ambition to accelerate growth and outperform the industry in the coming years. Therefore, I am pleased to report a strong first quarter, placing us well on track to reach our goals and aspirations for the year. It has been a dynamic start to the year, as in both regions we are operating in an environment of increasing geopolitical volatility. In the U.S., there have been recent spikes in the price of X, evolving conditions around tariffs, and increasing job insecurity in several parts of the country. In Europe, we experience ongoing conflict in Ukraine and large-scale protests in several Central and Southeast European countries against corruption. To navigate this environment, the most important thing is to stay focused, be agile to meet customer needs, and leverage your strength through your teams. I'm confident our growing together strategy provide us with the right toolkit to do just that. Our plan is anchored in the core attributes of what it takes to be a great local retailer. It has this heart of our strategy and our growth model which balances investment and cost control to deliver a compelling customer value proposition now and in the future no matter the market environment. To this end, during the quarter, we continued with our planned price investments in the U.S. giant food, for example, expanded their Fresh Low Prices initiative, lowering the price on hundreds of products across their own brand range. This builds on the steady cadence of price investments at Stop & Shop that already started in the second half of 2024. And as of today, Stop & Shop has rolled out value-enhancing campaigns, and lower prices at more than 40% of its stores. While we are still in the early phases of the campaigns, we are encouraged by the positive feedback with volumes, beginning to trend better at locations where interventions have been made. We are closely monitoring the impact of these investments and have created a strong feedback loop to make adjustments to optimize future programs. Albert Heijn in the Netherlands has further expanded their plant-based Terra own brand range to 350 products. Over 20% of this product range is part of price favorites and all items qualify for an additional 10% discount as a part of our Albert Heijn premium program. We are also doing a lot of great work to transform our loyalty programs to make progress towards our ambition to drive omnichannel loyalty sales penetration to over 80% by 2028. In the first quarter of this year, our five U.S. brands delivered over 3.2 billion personalized offers, which is a year-over-year increase of 25%. MyHannaford's Rewards was named amongst Newsweek's America's Best Loyalty Programs. As customers shop over time, They receive personalized offers for the products they love and earn 2% rewards on every own brand item. It's no surprise that Hannaford leads the U.S. in own brand penetration at almost 38%. A year ago, Albert in the Czech Republic added new MyAlbert features to drive loyalty, higher baskets, more traffic and increase healthy sales. And for example, included in these features are weekly personalized rewards and additional rewards for shopping over certain thresholds, 15% discount on our Nature's Promise Home Brand product line, and the ability to earn credits on selected healthy products. Since the update, Albert has seen a doubling in customer engagement and in discounts redeemed. It has helped contribute to a 7% points increase in loyalty sales penetration. And as we strengthen our customer value proposition through our price investments, enhancements to our loyalty programs, and differentiation of our own brand portfolio, we are also able to grow our customer reach. Which brings me to the next growth driver that I would like to spend some time on. Densify and grow our markets. Starting first with Profi. We are pleased to have completed our first quarter with Profi integrated into our portfolio of brands. Profi adds over 1700 supermarkets and convenience stores to our European footprint in the CSE region and will contribute over 3 billion euro to our sales throughout 2025. The acquisition solidifies our ambition to reach the number one or number two position in the markets where we operate. It also sets the CSE region up for additional growth and provides opportunities to drive synergies. So far, the integration is going well. Next to integrating this most recent acquisition into the family, we are proceeding at a good pace to accelerate remodels and new store openings. When the opportunities arise, this also includes improving our position in the market by relocating our replacing stores. With a replacement store, we recognize the benefit of a larger sales uplift than a standard remodel, without growing the store count, but with paybacks also taking a shorter time compared to opening a new store. An example of this is at Giant Food, which opened a replacement store at the South Lake Marketplace in Maryland. The store is a testament to community partnership. The store features premium offerings, like full-service meat and seafood departments, along with a coffee shop and a restaurant, creating a vibrant retail recreation hub that benefits local residents and businesses. As part of our plan to revitalize Stop & Shop, we communicated our intentions to deploy a more efficient use of capital to complete the remaining store remodels. Going forward, remodels are focused on making investments that will have the greatest impact on the in-store shopping experience, and this combined with enhancements to the customer value proposition. Under this way of working, Stopper Shop completed four remodels during the quarter and recently celebrated the remodel of the Framingham in Massachusetts location. The store includes remodeled produce and bakery departments, expanded prepared foods, and over 800 new products, including additional multicultural assortments. Moving to the next quadrant of our growth model, identifying innovation solutions and leveraging the power of AI and data, both are both critical components that enable us to innovate for growth and efficiency to drive our complementary income streams. Again, we have made good progress on this front during the quarter with several initiatives we believe can scale over time. And here are just a few examples. AD Retail Media in the US has partnered with Inmar Intelligence to provide advanced in-store advertising solutions for CPG partners. This collaboration aims to enhance customer engagement by utilizing creative strategies to reach shoppers at key moments in their shopping journey. Inmar's measurement tools will enable CPG companies to assess the effectiveness of their investment in advertising. Bol is piloting branded shelves for 50 selected advertisers, allowing them to customize content, branding, and product selection. This initial version aims to gather insights on campaign performance and advertising interaction, which will guide the broader rollout of the feature in this May. Albert Heijn recently introduced Stain, your smart helper in the kitchen, which gives a face to the already existing My Albert Heijn assistant. Stein makes it possible to naturally engage in conversation with moms and dads and children about all questions in the kitchen and will be given more functionality in the coming periods. Healthy communities and planet is an important priority within our growing together strategy. and we are committed to playing our role in the transition to a healthier and more sustainable food system. Every small change we implement makes a difference on a larger scale and I'm proud that we achieved several important milestones already in this year. We successfully priced our third sustainability linked bond. We published our second green bond impact report and the carbon disclosure project a prominent global benchmark on environmental issues, recognized our progress in climate by upgrading our climate rating to A-. And we received validation of our scope 3 targets in line with a 1.5 degrees scenario from SBTI. That completes my review of our performance so far this year. I'm confident our brands are taking the right steps moving at the right pace and leveraging the strong foundation and skill of our business supporting our customers and driving competitive advantage for our business along the way. Now over to Jolanda to talk more about the financials.

Thank you Frans and good morning to everyone. Our performance in the first quarter highlights that we can deliver solid results in a volatile environment. These results are a reflection of how we are balancing our growth, investments and cost saving strategies in the US and in Europe. As you know, we have an ambitious growth plan. We want to grow faster than the industry while maintaining leading margins and delivering sustainable earnings growth. Our brands are well underway with the new strategy and we see a strong and positive response from customers for what we're doing. net sales grew 5% to 23.3 billion euro. The closure of stop-and-shop stores and the cessation of tobacco sales in the Netherlands and Belgium negatively impacted net sales growth by one percentage point. An underlying operating margin was 3.8%. Strong performance and leverage in both regions was offset by planned strategic price investments in the US and a decrease in insurance results at Aho Wilhers Group. Diluted underlying earnings per share was 62 euro cents, up 4%, 4.6%, sorry, primarily driven by higher underlying operating profit, the impact from the share buyback program, and foreign exchange rates, partly upset by higher financial expenses and income taxes. Slide 20 shows our results on an IFRS reported basis for Q1, which were in line with our underlying performance. Q1 comparable sales growth were 3.3%, which includes a positive net impact of 0.4 percentage points from weather and calendar shifts and a negative impact of 0.5 percentage points from the end of tobacco sales in the Netherlands and Belgium. U.S. comparable sales growth shows a positive net impact from calendar shifts and winter storms, or 0.5 percentage points. In Europe, there was around a 1.1 percentage points negative net impact from tobacco and calendar. Common to both regions, comparable sales growth this quarter was a very strong performance in online sales, which increased 13.7%. Here we see that our investments in expanding our online channel infrastructure and enhancements to our digital loyalty programs are yielding strong results. In both regions, we are on a steady trajectory fueled by the fourth consecutive quarter of double-digit growth in online grocery. To accommodate how U.S. consumers want to shop, our U.S. brands have expanded the accessibility of our same-day delivery options with additional click-and-collect locations, more time slots, and partnering with DoorDash. Today, more than 80% of our stores have a click and collect point, while more customers are using either DoorDash or Instacart. This was a major competitive advantage during the winter storms in early 2025, where our US brands were well positioned to facilitate the rise in customer demand, contributing to record online penetration levels. Overall, omnichannel customers have grown nearly 25% year-on-year with high retention levels. On top of scaling our capacity to serve omnichannel customers, we also continue to make steps to improve our utilization and e-commerce performance through innovation, AI, and smart solutions. Albert Heijn's Neighborhood Delivery Bundle is an example of this. The bundle allows groceries to be delivered when the delivery person is already in the area, utilizing smart algorithms to coordinate delivery times. The technology boosts productivity, reduces CO2 emissions, and helps Albert Heijn meet increased demand while customers save on their delivery costs. Now looking at the regional performance in a bit more detail. US net sales were 13.9 billion euro. comparable sales, excluding gas, increased 2.6%, excluding net weather and calendar impact, reflecting growing positive comparable sales momentum and positive volumes during the first quarter. In addition to the net positive impact from calendar and weather, net sales were negatively impacted by the following. Around 100 base points from the impact of stop-and-shop closures, and around 20 base points from a decline in gasoline sales. Online sales growth of 17.9% was a key highlight for the quarter, with double-digit growth across most brands. Underlying operating margin in the US was 4.4%, down 30 base points from the prior year due to price investments and a change in sales mix from increasing online and pharmacy sales. In terms of brand momentum, Foodline's impressive performance now shows 50 consecutive quarters of comparable store sales growth. Equally impressive was Foodline's online performance during the quarter with nearly 40% growth and over a percentage point increase in online penetration. Foodline continues to grow their footprint with the opening of a new store located north of Charlotte and plans to open an additional five stores throughout the year. Construction is also underway for the next round of omnichannel remodels with 152 stores planned for the Charlotte market by the end of the year. Foodline's brand strength is a clear testimony of the strong connection the brand has with its communities. One remarkable achievement I would like to highlight is the Foodline Feeds Program, which started in 2014 and since then already handed out 1.5 billion meals. And they are not done. Their new goal is 3 billion meals by 2032. These are the kind of initiatives that make me particularly proud of our people. Turning now to Europe, sales were 9.3 billion euro, an increase of 10.1%. This is driven by the integration of Profi, which contributed 647 million euros, and the positive impact from comparable sales growth of 3.7%. Net sales were negatively impacted by 0.8 percentage points from the change in operating model at affiliated stores in Belgium. We expect around a half of a percentage point impact for the second quarter and a minimal impact in the second half of the year. Europe's comparable sales growth figure includes the following. A negative impact of 1.3 percentage points from the end of tobacco sales. and a net positive impact of 0.2 percentage points from the calendar shifts from New Year and Easter. Bull experienced double-digit sales growth during the quarter as well, driven by new opportunities with social commerce and expanded offerings in home living and appliances. A notable initiative is their partnership with the Belgium Home Renovation television show, which showcases Bull's products assortments and inspires customers through dedicated pages on their website. Underlying operating margin in Europe was 3.4%, up 30 base points from the prior year. Strong performance in the Benelux region more than offset margin pressure in the CSE region. This includes the dilutive impact of integrating PROFI, the IMCA tax impact in Romania, and consumer pressures in Serbia. Moving on to slide 26, our Q1 free cash flow was €199 million, which represents a decrease of €178 million compared to Q1 2024. This was largely related to an increase in net investments relative to the prior year as we cycle the divestment of two meat facilities in the US. This wraps up my financial review of Q1 and brings me to our outlook. our teams have delivered a solid start of the year and our performance thus far in the second quarter has been reassuring. Although there's additional volatility in the macro environment with tariffs and fluctuations in exchange rates, we maintain our guidance for 2025. To provide a clear framework to work with for your models, our EPS guidance reflects an average US Euro rate of 110 for 2025. With our strong market positions, our financial strength, and the great foundational work we have carried out over the last few years, I am confident that we are well positioned to deliver on our growing together plans in this year. We will stay focused on doing the right thing for the long-term health and success of our business, and we will continue to serve and protect our customers, providing a broad and healthy assortment with choice for all wallet sizes. We will leverage our strengths, keeping our own house in order, and ensure we stay well invested in our value propositions whilst growing our footprint. And with that, I would like to thank you for tuning in, and Sharon, 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. We will now go to our first question. And your first question today comes from the line of Robert Janfors from ABN OMRO, Odo BHF. Please go ahead.

Yes, hi, good morning all, and thanks for taking my two questions. First one, in February, your EPS growth outlook was based on an implicit modest exchange rate tailwind on EPS growth whereas the current exchange rates that you guided or that you mentioned, the 110, implies a modest headwind on EPS growth. So my first question is, where did you find the leeway to keep your EPS guidance unchanged despite this estimated currency-related negative delta of an estimated few percentage points on EPS? And my second question is on PROFI. You mentioned that it had a modest headwind negative impact on net income in the quarter and that it was mildly dilutive for EBIT margin for Europe. Based on this, is it fair to assume that Profi's EBIT margin was about 2% or maybe slightly below that in the quarter? That were my two questions. Thank you.

Thank you very much for those questions. First on EPS, Our EPS guidance is a range, so what we included in our guidance is the 1.10, which gives us the confidence that we are able to deliver on the set of ambitions that we've presented. And that is a balancing act between growth on the one side and margin on the other side. For us, it's important to remain focused on that underlying performance. And we hope that with the guidance given that we have provided you with some input for the financial models that you're using. But the guidance reflects for EPS a range, like the mid to high single digit also reflects a range. Then on PROFI, as you know, we don't guide on a brand level for profit margins. The PROFI impact which was negative indeed in the first quarter has been absorbed by the EU results that we presented and are also absorbed in the guidance that we've given. We expect PROFI to contribute to our margin in 2026 onwards because as we disclosed earlier, the synergies that we expect from the PROFI transaction will only materialize amongst, you know, approximately one year after closing the deal. So that is how we look at growth rate.

Thank you. Thank you. All right, thanks. Thank you. We will now take the next question, and the question comes from the line of Isabel de Riva from Morgan Stanley. Please go ahead. Hello.

Good morning. I have two questions. Both of them are on the U.S. So my first question on the U.S. is could you elaborate on the grocery online sales growth of 20% overall and 40% of Food Lion just because the numbers are really, you know, they're just very robust. So could you expand a little bit more on what you have done in terms of the sales level improvements to take market share and also within those growth rates, what was the impact from the winter storms so that we can understand how the ex-weather trend is evolving in the online grocery business in the US. And then my second question also from the US, could you comment a little bit about your expectation of what might happen with the SNAP program and whether you expect any cutbacks to be announced once the budget process is over? linked to that, how should we think about your brand sensitivity to any potential cutback on Snap? Would you expect it to be quite similar to how it was in 2023? Or has anything changed which makes you think the sensitivity may be higher or lower should those cutbacks come through?

So thank you, Isabel, for your questions. I will address a little bit the online growth and why do we have this Strong growth. Yolanda will say a few things on the weather impacts in the U.S., and I will come back a little bit to Snap and what we might expect as far as we have a crystal ball or no crystal ball. So online, 17.9% growth in the U.S. in the first quarter is phenomenal. We have an 8.8% online participation in our sales now, which is record high for us in the U.S., And I think this is a consequential result. I don't want to sound too confident, but in all the investments we made in the last years on digital, on online, on in-store PIC software, which is proprietary, but also on the partnerships we have with Instacart and DoorDash. And where FoodLine came a little bit later into the game in online penetration, that's why also the reason is that they... that they catch up now quite fast with the 40% growth online Yolanda mentioned for FoodLine. So I think we have in the U.S. quite some learnings. We took quite some consequences last year when we closed down a few fulfillment centers and transferred those sales to our in-store pick, click, and collect systems, which is super convenient for customers to drive their car from the stores and in three minutes your your basket is in your trunk. So I think a good online offering, the full store is at your disposal, which is rather unique for online. And it's your own full store with your own cultural and ethnic assortment if you shop there. It's a very good digital connection now. We have high efficiencies in in-store at the moment in in-store pick. And I think we have a very good digital connection with our customers and a high level of convenience. On SNAP, first of all, the present SNAP levels, the SNAP governmental support levels are at the lowest levels since COVID. So we are at a very low SNAP level at the moment. What might happen or what the government might decide on that, we don't know. We have no further information. If they would like to further support, if they would like to height it or to increase it more, We don't know what they have in mind, so we have no information on SNAP, but the present SNAP levels are at the lowest since COVID already. And then on weather, the weather impact for the U.S., Jolanda.

Yes, weather impacted our coast hills in the U.S. positively, and these were related to the snowstorms, by 130 base points, and that was offset by New Year's Eve and Easter by 80 base points. So weather impacted ARCOM sales substantially this quarter.

Thank you. And are you able to break out that weather impact on the online sales specifically? Should we assume that was where it was concentrated?

No, we can't break that out. And, of course, it contributed, but I would not say it was concentrated. So it contributed but not concentrated.

Okay, thank you.

Thank you. Your next question comes from the line of Frederick Wild from Jefferies. Please go ahead.

Good morning, Franz, Yolanda, JP, and team. Thank you for taking my questions. So, first of all, could you talk us and maybe your comments on U.S. behaviors you're seeing at the moment? For example, are you seeing maybe more private label trading? Have you seen any volume response to stop-and-shop price cuts? And how is all these changing through the quarter and into April? And my second question is, you've now done more than 40% of the store-based investments in Stop and Shop. Could you remind me what this was in Q4, and how do you see the cadence of that investment developing through the rest of this year? Thank you.

Yolanda will take the last one, which is also, Frederick, by itself, the more difficult question. But she will shed some light on that penetration of the store-based remodel for Stop and Shop. On the U.S. behaviors, what do we see? At the moment, we see a rational pricing behavior in the market. And it comes down to, I think, that a lot of companies are dealing now with investing in technology and digital e-commerce and online. E-commerce and pharmacy, Yolanda mentioned this earlier, are strong growth drivers for us, but at the same time also dilutive to our store margins. And that phenomenon is not unique for us, so we have to deal with it anyhow. And what we see from a customer behavioral point is that, yeah, there is more, I think, uncertainty in the markets with everything what is out there might be announced or might still come there. I think also that is quite uncertain. And I think that's also the reason why... The fact that we start addressing favorable prices since the middle of last year even more than we did before, investing in our prices, invested in our private label, having also more price, opening price private label in our shelves. It's having the right reaction there so that customers where they might get or might have more challenged baskets or challenged household budgets, They also can still shop in our store, both for the more price-sensitive and for the less price-sensitive assortments. So I think it's fair to say that we see a more value-focused customer due to uncertainty. And that's why also we started with those price investments last year. That's why also private brand plays an important role. And so far, I think, with the sales numbers we see now, I think we're on the right track there. And if you look at Stop and Shop, also there, the promotion on prices we do, the way we talk about it in the store, the way we run our promotions, the way we have special things on meal deals and meal solutions are the right things to also give a better customer experience for those wallets and budgets which might be challenged. The store base.

The store base, yes. We indeed have already invested in 40% of the store base at Stop and Shop and we are now focusing more on our price investments because stores are in pretty good conditions and we have a light renovation model that we're deploying which is a lot lower in investment levels as we are shifting to that price investment because that is how we can serve our customers best and as Franz already indicated 40% of the stores at Stop and Shop now have those price investments going on. And we will roll that out going forward.

Yeah, what we said earlier, Frederik, is we remodeled now roughly 200 stores at Stop and Shop already. We have a total store fleet of 360. We already said earlier that a part of the base we don't need to remodel because they are in good shape. and we have light remodels for a number of stores now where with lower amounts of investments, we can still do a great job there to make sure Stop and Shop compete in those neighborhoods. Thank you both so much.

Thank you. Your next question comes from the line of Michelle De Clercq from KBC Securities. Please go ahead.

Yes, hi. Thanks for taking my questions. The first one would be on Europe and more specifically Belgium. One of your key competitors there recently issued a profit warning stating that competition has intensified and there is a bit more pricing pressure as well. I was just wondering in the past, you always mentioned that the Belgium and the transformation has been outperforming. I just wanted to get your view if this trend is still ongoing and if you're maybe the competitor that they are referring to, of course. And then the second question would be returning to the online sales growth in the U.S., which was, of course, very strong. I assume that in the past, the online sales, the margins are, of course, lower than the U.S. overall margins. I understand that you cannot be very specific about that, but can you maybe tell us how these online margins have been trending over the recent quarters, given the strong sales uplift in the recent years. Those would be my questions. Thanks.

Great questions. Thank you very much. Jolanda will come back to the second one. I will give a little bit more feel for the Belgian market. Yes, we said in the previous call, in the previous quarter, that our Belgian business – is back on higher market shares than pre our intervention in franchising the 128 stores. I can just reconfirm that those 128 were already fully transitioned last quarter, but that indeed the business keeps growing. And also the business keeps growing in market share. I think it has to do with the entrepreneurial spirit in the stores, the Sunday openings, that also our associates see it's a great environment to work in, and that also the entrepreneurs have an even better feel with the local communities to compete even better. So the Deleuze stores are gaining share and gained share, but also the Albert Heijn stores in Belgium gained share, and not only because they opened more stores, but also on the same surface, they also gained share comparable sales. So we see our market shares, both for the Deleuze segment and for the Albert Heijn segment. Albert Heijn segment is of course mainly the Dutch speaking part of Belgium. But we see both shares growing. And that is, yeah, that is exactly what we had in mind. Who is also growing, by the way, market share, but it's not so much in the supermarket channel. It's our bull business in Belgium. So also there we are, like in the Netherlands, we're quite happy with that development.

Yeah, and thank you for your question on online profitability. We are strongly improving our online profitability. Most of our brands in Q1 were already profitable, but fully allocated, we expect to be profitable 2026 onwards.

Okay, that's clear. Thank you.

Thank you. Your next question comes from the line of Francois Degas from Kepler Silver. Please go ahead.

Good morning. Thank you for taking my questions. The first one would be around the on-brands. Could you help us to have more colors on it? On-brand penetration in the U.S., where do you stand? How homogeneous is it from one brand to another? And what kind of growth do you experience from your own brands there? And the second question would be a follow-up on the online sales. So we understand it is dilutive on margin in the U.S. Can we Can you quantify the dilutive impact? And can we understand on the other hand that the impact is not dilutive anymore in Europe? Thank you.

Francois, could you repeat the second question? What is dilutive to margins? What did you say?

Online sales. Online sales, yes. So could you quantify the dilutive impact on margin in the U.S.? ? Are we right to understand that in Europe there is no more dilutive impacts of online sales? Thank you.

Maybe to start with the last question then, because we are there now. In both regions, online remains dilutive. So as I stated, from 2036 onwards, we will be profitable. It will then be still dilutive as the overall margin is, of course, higher than that. And we don't quantify that underlying. Overall, by the way, we're very happy with that online growth because we believe in that online channel model. And we need those online customers for personalization, building communities, and also the online customer spends more money overall than a customer that shops only in our stores. So it is a profitable impact both ways. but it will remain dilutive for a while still.

You also mentioned, Yolanda, earlier that we are trending towards profitability, fully allocated, honest calculation, fully allocated profitability. We're trending towards it and we expect that to happen in 2026.

2026. And then it still will be dilutive.

It will become less dilutive.

Less dilutive.

It's a good trend. And again, like Yolanda mentioned, Just to look only at the online or only at the store channel, I think, is not anymore how customers behave. Customers look for an omnichannel solution that they can have that shopping experience under one roof, the same type of offers, the same type of private brands, the same type of assortments as in a store experience. If they get also this online, I think, then you get to, you see, we know that loyalty gets up. We know that the customers will get bigger. We know that the share of wallet is growing, and it's exactly what we would like to do. Only looking at online is, in our view, not the right thing to look at this. You have to look at total customer profitability and total value there.

On branded sales, the other question that you posed, as you know, in our Growing Together strategy, we've set a target for 2028 or 45% of own branded food sales. We've grown that own brand food sales since last year with 1%, 1.1% in Q1. U.S. has a penetration around 32, 33% and Europe around 51, 52%.

And it's a strong proposition to our customers, François. I mean, own brand, private brand, whatever, how you call it, we formulate the products. We make the proposition if it's on healthy food, if it's on packaging, if it's on nutrition labeling. It's our design, and if we have good products there, and we have fantastic ranges also in the U.S., Hannaford 38% share already, fantastic ranges on formulation, healthy, gluten-free, all kinds of dietary requirements. That makes you different. That gives you differentiation because that brand you only can buy with us. We have big learnings from Europe with more than 50% in the Netherlands and in Belgium on private brand share. So that is a beautiful learning where we work with teams together between Europe and the U.S. to make those learnings also effective for the U.S. in the targets Yolanda just mentioned.

Thank you very much.

Thank you. Your next question comes from the line of William Woods from Bernstein. Please go ahead.

Hi, good morning. Thank you for taking the questions. The first one's on the price investments. Can you give any comments on where your price index has gone versus peers? And I suppose why only 40% of the stop and shop stores have the price investments? And then the second one is obviously you're balancing price investments and margins in the US. Are you seeing any positive reactions to the price investments? And how do you see the trajectory of price investments versus margins over the next 12 months? Thanks.

William, the 40%, your 40% question, what was it about? Was it about price investments in 40% of the stop-and-shop stores? Was it going in that direction?

Yeah, effectively, why have you only rolled out over the last three to nine months into 40% of the stop-and-shop stores? Why haven't you gone to all of the stop-and-shop stores?

Yeah, yeah, okay. So... That is maybe one of the easier questions today. The reason why we do this is we would like to be, in a way, surgical, and we would like to make sure that we test and try those price investments, what does resonate, what gives us elasticity in price uplifts, sales uplifts. So that's why we go region by region. We test and try, and we have a whole team on this, not only on the price investment in itself, but also how to communicate in the stores. And what we have seen is that we are undervalued, let's say, by customers on the actual pricing. So the price perception is not where it should be and where we think we deserve it to be. So that's why also the in-store communication on the labeling, on the work with digital tools, on your apps and in your phone, these kind of things we also test at the same time. I think that's why it's a smart sequence to invest in pricing, run your communications, check your price perception, see your elasticity and price uplift, adjust where needed, and get better over time. And that's rather, yeah, that we do this at an unreasonable schedule because we, yeah, those price investments are investments, so you like to have a return on that. On the price index,

On the price index, yeah, we track, of course, our price indexes, but we don't disclose them. So maybe to the last question, Franz, and maybe I can kick off and you can fill in. We're, in fact, not so much balancing price investments and margins. What we are balancing is price investments and growth. So what we're looking at, whether or not, as Franz said, in a surgical way, the price investments that we do trigger growth. And that is how we will optimize, one could say, our returns also for our shareholders. And we do see those positive impacts. What encouraged me this quarter was, you know, the continuing volume trend. Because in Q4, we already started with those price investments. And Q4, as you know, we saw positive volumes in the U.S. And that trend has continued and further improved in Q1. So that is on a macro level in the U.S. where we see that those price investments seem to trigger positive reactions.

William, the numbers we have, and those are always lacking a little bit, the Nielsen numbers. As I mentioned before, in the U.S. we are slower with the Nielsen numbers than in Europe. That is not our mistake, but that is our provider. We see stable or growing market shares in the US in our markets. And we see the second quarter in a row that we have positive volumes. And those are first positive indicators that we do the right thing. And we also see that a positive trend with Stop and Shop as well. But again, we know that we lost share over time with Stop and Shop. We said we go to invest in this brand. and not only in pricing, but also in private brand, also in store execution, also in produce, and also in the asset quality and the fleet quality, which we did already for a big part. So there are a number of things which come together as a whole, and that is a gradual improvement, but you would like to make sure that you spent the money where in the end also the effect will come. So that's why we are careful, but the moment we see that things are working, then we roll that, of course, out. Excellent. Thank you very much for the answers.

Thank you. Your next question comes from the line of Ferdinand De Waal from De Graaf Petercam. Please go ahead.

Yes, good morning. It's Ferdinand De Waal from De Graaf Petercam and thank you for taking my questions. I'd actually like to come back and stop the show because if you look at your numbers for the US and you should look at the sales excluding online and you say Foodline and Hannaford are taking the lead. Then I arrive at a negative growth for the other banners. So if you then could explain that, is that due to the price investments or is it also that the volumes are down there? That's the first question. And on the consumer behavior, is a kind of restocking at the consumers of stocking ahead of the trade tariffs coming in? But that were my questions.

On the first part of your question, bear in the back of your head that we had stop-and-shop store closures, which had an impact of around 100 base points in Q1 in the U.S. net sales.

Can I put that into account?

Then we cannot follow your mathematics.

I will come back on it.

Check in with the IR departments. We don't think that we... know everything, but this calculation we cannot follow. And the second thing is stocking up. Yeah, there's quite some questions we get on the tariffs. Let me be as explicit as we can be. We are in a total business in a food business. 97% of our sales is food. But mostly food is locally sourced and locally procured. So that's why the food business is less vulnerable, less exposed to tariffs. That's one thing. For those food items which are imported, for example, to the U.S. or to the U.S. in this case, we're talking about tariffs, it's a level playing field for everybody. When everybody's importing bananas, then it is for everybody the same level playing field. So that's also where our food business and our tariffs are not hitting food that hard. We are not in general merchandise. We're not in non-food. We're not in discretionary items. So I think, therefore, less vulnerable. And at the same time, we do not see that customers are stocking up food products because they are afraid for tariffs or increases there. At the moment, the CPI in the Northeast, food at home, is 2.4%. You might expect some increase in food prices when indirect effects might be there, but I think that is at the moment speculation.

Okay. Thank you very much.

Thank you. Your next question comes from the line of Rob Joyce from BNP Paribas. Please go ahead.

Good morning. Thanks very much for taking my question. So two on the U.S., Firstly, on the volume performance, backing out inflation and using underlying numbers. Am I right in saying it looks like volume was around 1% in the quarter? Is it trending slightly up on that in the first five weeks of 2Q? That would be great. And the second one is just on the U.S. margin. Should we think of the 4.4% this quarter as a good level for the second quarter? And are you, based on what you see today, still happy that margins should be sort of flat in the second half of 2025 in the U.S.? Thank you.

Yolanda, that's the U.S. margin.

As you know, we don't give guidance on a regional level. We are confident with the Q1 that we realize that we can deliver on the ambitions that we shared. We are driving growth, as you know, investing in price, expanding our own brands, and we will see in the second half of the year that we will anniversary some of those price investments in the U.S. because we already started with them last year. On the positive side, I would say you see the volume, online profitability improving, and the cut savings. And on the negative side, as we already indicated a bit, the sales mix, which is dilutive. So all in all, confident to realize the guidance that we've given for the year and anniversarying some of those price investments in the U.S. in the second half of the year versus last year. I think that is as much guidance that I can give.

Yeah, but I think, Jolanda, also, and Rob as well, I think that year guidance for the total company with all the elements like – like margin and the investments and the free cash flow and the mid-high single digits with the $110, I think it's already in this time of uncertainty quite some confidence. So we do, of course, our build-up in the company, but we don't give guidance or reporting on segments or these kind of things.

There was also a first question that wasn't there. Unlike for like the volumes, sorry, yeah.

Yeah, I mean, just to talk about quickly, I guess you've previously given us an indication as to sort of the quarterly U.S. margin trajectory, I think in the third quarters and fourth quarters. I mean, just to give us an idea, are we round about the level you think it's going to be at, or is there anything we should expect big changes from here?

Leave with the group guidance on margins and growth.

Okay. And then the other question was just, yes, U.S. volumes might calculate about 1% positive in the quarter. Could you just confirm that's about right and then give us an idea of where that's trending, please, in the first half of the second quarter? Thank you.

We already gave you the information that we had for the consecutive quarter in U.S. positive volumes, and we would like to leave that there.

And maybe to be a bit more, normally you are a bit more forgiving than me, Frank, but the first insights in the second quarter are positive.

We had a good start of the second quarter that I can give as well. And our team's working on volume. Our team's working on volume. Our CPG partners are super interested in volume. They also support with their trade funds and their promotional money to build volume because that is an opportunity and or a challenge for the total industry. So and but then I repeat myself is that strong positions on the East Coast, number one grocer on the East Coast and 80% of our sales we are number one and two in our DMAs. So strong leadership positions there and that resonates well with our CPG partners. Good negotiation levels going on, people try to drive volume, private label sales is growing faster than non-private label sales. that also is driving volume. So, yeah, I would be disappointed when in the second quarter we would not report volume growth, but a good start of this quarter.

Thank you.

Thank you. We will now take our final question for today. And the final question comes from the line of Sridhar Mahankali from UBS. Please go ahead.

Hi. Good morning. Thanks for taking my questions. Maybe just to build on the U.S. position, I think you've talked about getting up to 40% of the price investments completed in Stop and Shop France earlier. Should we expect you to complete that repositioning in 2025? And can you give us an idea where you are with Giant, please, on the same sort of 40%? benchmark so far we've got to start and shop. So that's the first one on the US. Second, I think, Franz, you also referred to Sunday openings in Belgium. Is there any way you can help us in terms of quantifying perhaps the Sunday openings impact on the new segment level of the pump? And when should we expect that to start annualizing, please? Thank you.

So on the Sunday openings, it should almost annualize next quarter based on the rhythm of the franchised transition stores, 128. And it helps us a lot because the weekends get bigger in general in the industry. So a Sunday opening for 50% of your sales in Belgium because the other 50% had already Sunday openings because they were already franchised, as you might remember. So it's helping us a lot, and it's also, I think, one of the reasons, one of the good reasons, plus the other things I mentioned earlier in the call, of a positive sales trend and a positive market share gain.

On the stop-and-shop question, and hello, Sridhar. As we discussed on strategy day, we will invest $1 billion in the next four years in our growing together strategy in the U.S. That's not only stop and shop, by the way. So we talk a lot about stop and shop, but it's not only stop and shop. And the 40% of stores that we already invested prices in that Franz referred to is part of a multi-year plan also for stop and shop. So we will be done, one could say, in year four of our strategy, and it probably is a continuous balancing, again, growth and margin, because in the end it's not margin we can bring to the bank, it's the euros and the dollars we earn. So we try and find that optimum there.

Got it. I mean, relative to that 40%, where are we in giant? Is there a number? How much have you completed in giant?

For giant, it's a little bit less programmatic as it is for stop and shop. For stop and shop, I mentioned a few things, store fleet, asset quality, I mentioned execution in stores. I mentioned private brands. The giant food is number one in, I suppose you refer to giant food and not the giant company. Giant company Pennsylvania, giant food you refer to most likely is Washington and Baltimore. We're the number one player there. And the stores are in very good shape. Asset quality is great. Store execution is super. We have a good supply chain on the produce side. So it's there for a day-to-day management to be well positioned for competition. So it's a very uncomparable situation to stop and shop, which is a more problematic approach.

Thank you. Thank you. I will now hand the call back for closing remarks.

So, everybody, thank you very much for sticking to the two questions today until we got to Sridhar. I'm happy to follow up with any of you who we've missed on the call today or any follow-up questions. The team is available, and we look forward to seeing you at the many conferences over the next couple of months. That's it for today, and we'll be back again in August.

Yeah, and good luck to the Londoners for the Arsenal game tonight, for those who support Arsenal. All right. Thank you very much, operator, for your help.

thank you that does conclude our conference for today thank you for participating you may now disconnect