Koninklijke Ahold Del Ord

Ladies and gentlemen, good morning and welcome to the analyst conference call on the second quarter 2025 results of Ajo del Jez. Please note that this call is being webcast and recorded. During this call, Ajo del Jez 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 AHODLH. 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, Sharon, and good morning, everybody. I'm delighted to welcome you today to our Q2 2025 results conference call. On today's call are Franz Muller, our President and CEO, and Yolanda Putz-Byle, 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 at holdales.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 your questions to two questions to make sure everyone on the call will have sufficient time. If you have further questions, then please feel free to re-enter the queue, and you were all very good last quarter, so again, if you can stick to it this quarter, we'll be very happy. To ensure ease of speaking, all growth rates mentioned in today's prepared remarks will be at constant exchange rates unless otherwise stated. So with that, I'll hand over to Frans.

Yes, thank you, Jeppe, and good morning to all of you. I'm pleased to report another strong quarter for Alderlees, as we sustained solid and consistent results. and in some cases even accelerated growth across our network of great local brands. It's now slightly more than a year since we introduced our Growing Together strategy, and in this first year of our plan, we are focused on kick-starting a period of accelerated growth rates and increased momentum. As I reflect on how things are going to date, I'm confident we are on the right path and that we have put in place the right balance of initiatives suited to winning in this type of environment. When consumers are challenged, executing with clarity and consistency and getting the basics of retail right are super critical. And we are in a great position to do that as we capitalize on the many years of maintaining and modernizing our capabilities. So in that direction, there are three areas I would like to highlight today. How we are adapting our customer value proposition and product assortments so customers feel a positive difference as they shop with us every week. How we are capitalizing on our omnichannel capabilities to drive market share growth at a faster pace than the market. And thirdly, our focus on driving operational excellence in our store base and delivering cost savings across our operations to reinvest in growth. And later, Jolanda will cover how our teams are investing in our long term opportunities to create future growth. So starting with the first area around our customer value proposition. From our growing together strategy, you will know this all about things like delivering trusted products at affordable prices. creating vibrant omni-channel customer experiences to strengthen loyalty and sharpening our competitiveness to drive brand strength and securing our strong relative market positions. As you know, we are backing this up with several investment commitments, including a $1 billion price investment in the U.S. over the coming four years, home brand assortment expansion, and digital personalization programs just to name a few. All our US brands have now launched price investments, while also strategically leveraging the strength of our own brand portfolio. An example of this is Hannaford, and that's in the Northeast. In May, the brand launched a strategic price investment across all our stores in Massachusetts, lowering prices on approximately 2,500 center store-owned brand products. The initiative was bolstered by a targeted omnichannel marketing campaign and leveraged the strength of the Hannaford My Rewards loyalty program. The investment is showing promising results, with center store home brand unit sales outpacing the rest of the store. As a key differentiator, home brand assortments are products that customers can only get in our stores. And in our weekly customer data, we also know the power of a well-executed own brand product has in driving customer loyalty. While we already offer thousands of own brand products in both regions, what also matters is ensuring we continuously innovate and that our own brand products early stand out on shelves and in our marketing for the quality and value they have been designed for. So far this year in the U.S., we have introduced 300 new OM Brand products. And in Europe, we've added 170 new products for joint sourcing, including 100 products in the price favorite range. All our brands have seen year-over-year growth in OM Brand penetration. And in both regions, we are seeing OM Brand sales growth outpace the rest of the store in both dollars or euros and units. Moving to my next area of focus, I would like to start by acknowledging a key milestone that our brands already achieved during the first half of the year. On a fully allocated basis, we have reached e-commerce profitability for the total company. And this underscores the strength and scalability of our omnichannel model, which is a key long-term in driving market share growth at a pace faster than the market. Our improved online profitability has been driven by several key factors, including our orientation towards less asset-intense same-day delivery models, such as click and collect and third-party partnerships, increasing fulfillment capacity, automating operations, and leveraging retail media propositions. More and more, customers are finding value in the convenience of our brand's omnichannel offerings. And for the fifth consecutive quarter, our online grocery sales grew at double-digit levels. This quarter, Food Lion completed its transition to Prism, our in-house developed and proprietary digital and e-commerce platform. Prism enables faster, more tailored online shopping, helping customers easily find their favorite products. and it also allows customers to activate digital coupons, reorder quickly, and choose delivery or pickup with ease. Shortly, we will extend the platform to Hannaford as well, which completes the roll-off of the technology to all the AD USA brands. In Belgium, DELES is stepping up their e-commerce ambitions. During the quarter, they opened a new distribution center in Worst, which doubles their e-commerce capacity. And at the same time, they are taking steps to provide an even smoother customer experience by eliminating the fee to use the in-store pickup service. This makes the service accessible to as many people as possible. It's not only existing customers who are drawn to the benefits of our omnichannel offerings. At the last, half of the new online customers come from outside its network. meaning people with no prior DLS experience discovering the brand through home delivery or in-store pickup. In the US, customers in our DoorDash channel grew 300% over the last year, with half of that growth coming from customers that had not shopped online with any of our brands before. With e-commerce market share expansion in both regions, Our store-only general proposition will continue to be a differentiator for our brands as we look to densify and grow our markets. Lastly, let me spend a little time on how our brands are driving operational excellence and delivering cost savings across our operations to reinvest in growth. Starting with Stop and Shop. It has been one year since we announced decisive and deliberate actions to ensure a stable and thriving future for the brand. And since the announcement, we have closed 32 underperforming stores, started price investments with regularly recalibrating based on customer response, continued store remodels focusing on the more efficient use of capital and a broader store reach, improved store execution and on-shelf availability, and deployed communication tactics to maximize customer awareness and emphasize own brands. We are encouraged by customers' response to the initiatives, which we have implemented so far. And where we have made investments, we are attracting new customers, seeing increased volumes, and seeing an improved net promoter score. While we are celebrating the wins, we continue to focus on executing the plan, driving sales, and finding sustainable and substantial efficiencies. This includes a strong focus on supply chain optimization, as well as maximizing promotional effectiveness. In the second half of the year, we will expand our price investments to additional markets, further optimize our assortment, and continue our store remodels. We are also making good progress with the integration of Profi, the business in Romania, which will significantly to our revenue growth ambitions in Europe and strengthen our market position within Romania. Work is progressing on the back end to fully integrate PROFI into both our established footprint in Romania and the broader central and southeastern European region. Within Romania, Megimage and PROFI are exchanging best practices, and this enables both brands to learn from each other's operational strength. and accelerate collective growth while maintaining their distinct identities and commercial focus. While integration work continues, our local profit teams remain committed to their local mission, serving both urban and rural communities through a diverse portfolio of store formats that cater to the varied shopping needs of customers. So far this year, Profi has opened over 20 new locations, and the brand is on track to open 100 by the end of the year. And they continue to set new record highs for number of weekly visitors and weekly sales. More broad-based, we're also well on track to hit our goals for safe for our customer, as both our regions continue to work on leveraging our scale and synergy potential. So that completes my review of our performance. With our strong culture, known for its agility, consistency, ability to drive transformative change, and the commitment to sustainability, we are well prepared to navigate the complexities of the current business environment and position the company to drive brand strength and market share growth in the periods to come. Now over to you, Jolanda, to talk more about the financials.

Thank you, Franz, and good morning to everyone. While the environment we operate in remains dynamic, our growing together strategy keeps us focused, and we are executing well towards our long-term ambitions. Elevating the customer value proposition is at the heart of our strategy and a fundamental driver of the investments that we're making. We know that many customers continue to feel pressure on their household budgets. That's why these investments are not just strategic, they're also essential to delivering real value for our customers every day. The good news is we see the combination of all these initiatives is paying off. We delivered strong sales growth and positive volumes in both the US and in Europe. While investing consistently in our brands, at the same time, our teams have maintained a relentless focus on cost discipline and driving operational efficiency. As a result, we are able to balance strategic price investments in the U.S., as well as the impact of the first-year integration of PROFI to maintain healthy and stable underlying operating margins. Let's have a look at the key underlying results for the quarter, as shown on slide 16. net sales grew 6.5% to €23.1 billion. The closure of stop-and-shop stores and the cessation of tobacco sales in the Netherlands and Belgium negatively impacted net sales growth by 1.2 percentage points. Underlying operating margin was 4%. Strong performance in the Benelux was offset by the first-time consolidation of Profi and the planned strategic price investments in the U.S. Diluted underlying earnings per share was 65 euro cents, up 0.7% at actual rates. This was primarily driven by higher underlying operating profit, the impact from the share buyback program, and lower income taxes, partially offset by higher financial expenses and unfavorable foreign exchange rates. Slide 17 shows our results on an IFRS reported basis for Q2. which were 56 million euros lower than our underlying results, primarily due to impairment charges on operating stores in the US and restructuring costs related to the integration of Prowvi. Future comparable sales growth was 4.0%, which includes a positive net impact of 0.8 percentage points from calendar shifts and a negative impact 0.6 percentage points from the end of tobacco sales in the Netherlands and Belgium. US comparable sales growth shows a positive net impact from calendar shifts of 0.9 percentage points. In Europe there was around a 0.9 percentage points negative net impact from tobacco and calendar. Now looking at the regional performance in more detail. US net sales were 13.2 billion euro. Comparable sales excluding gas increased 2.6%, excluding calendar impact, reflecting a stable comparable sales environment, and positive volumes during the second quarter. In addition to the positive impact from calendar, net sales were negatively impacted by the following. Around 110 base points from the impact of stop and shop closures, stop and shop closures, and around 40 base points from a decline in gasoline sales. Online sales growth of 16.4% was a key highlight for the quarter. We continue to see strong customer response to our DoorDash partnership with growth in our marketplace channel up over 30%. Underlying operating margin in the US was 4.4%, down 30 base points from the prior year due to the price investments and a change in sales mix from online and pharmacy sales. While online sales is profitable on a fully allocated basis, it still continues to have a dilutive impact to the overall margin profile. Turning now to Europe, sales were 9.9 billion euro, an increase of 13.4%. This is driven by the integration of Profi, which had an impact of 8.4%, and the positive impact from comparable sales growth of 4.9%. Net sales were negatively impacted by 0.4 percentage points from the change in operating model at affiliated stores in Belgium. We expect minimal impact in the second half of this year. Europe's comparable sales growth includes the following. A negative impact of 1.6 percentage points from the end of tobacco sales and a positive impact of 0.7 percentage points from the calendar shifts for Easter. Poland joined another very strong quarter, growing nearly 13% as they adapt swiftly to evolving customer trends. As shopping habits shifts, Ball has responded by adding carefully selected international selling partners and brands that live up to their high standards. So far this year, around 300 international partners have been added to their platform. Ball has also expanded their refurbished range to 10 categories. Underlying operating margin in Europe was 3.7%. In line with the prior year, strong performance in the Benelux region was offset by the dilutive impact from the first-year consolidation of DROFI. Moving on to slide 21. Q2 free cash flow was €517 million, which represents an increase of €139 million compared to Q2 2024. This was largely related to an increase of our net investments and improvements in networking capital from timing differences. In today's world, technology is changing at lightning speed. Investing in technology and leveraging the power of AI is crucial to enable us to innovate for growth and efficiency. We are continuously looking to simplify our ways of working and technology is an important enabler. Across the organization, we have more than 390,000 associates who serve over 72 million customers weekly. We are investing in technology that helps streamline their tasks and enhance their daily work experience so they can deliver exceptional service and contribute meaningfully to their communities. We have made good progress in this front during the quarter with several initiatives we believe can scale over time. Here are a few examples. Most of our European brands have introduced AI-driven assistance, including Maxi GPT in Serbia, Lion GPT at Delhaes, Albert at Albert, and the Assistant at Albert Heijn. Through the AI solutions, associates have the right information at their fingertips to help customers better and faster, while also making the associates' responsibilities easier and more enjoyable. After a successful pilot, Albert is rolling out AI technology that helps cashiers quickly identify items without barcodes such as baked goods, fruit and vegetables. A camera captures an image of the product and AI quickly identifies the product. The solution significantly reduces manual errors and waiting time while simplifying the checkout process for associates. In the US, we've rolled out updates to our spectrum proprietary technology to simplify and modernize our management for online fulfillment. Updates are focused on an improvement in intuitive user experiences, both for associates responsible for picking online orders. Our investments, both internally and externally, underscore our commitment to technology investments across both consumer-facing and back-office solutions. These investments enable our brands and our associates to serve customers better every day. Another area where I'm proud of the progress we're making is on our ambition to increase healthy food sales. Our brands are committed to offering the right assortments, making healthier and more sustainable options both affordable and accessible. We strive to guide customers and communities towards positive choices that help them live healthier and more sustainable lives. A good example is Albert Heijn's introduction of new blended products combining animal and plant-based ingredients. These products offer a familiar taste and texture, improve nutritional value, and a lower carbon footprint. This way, Albert Heijn is helping customers make more conscious choices. Dell has recently launched a Color Your Summer campaign. The campaign educates customers about the benefits of healthy eating as well as the cost advantages of seasonal products, both to your budget and the environment. Der Haas also continues to support healthy choices by offering a 10% discount on fresh produce through their loyalty program. Our brands are at the heart of our communities and I'm confident we're taking the right steps to support the long-term health of those communities. That wraps up my financial review of Q2 and brings me to our outlook. The teams have delivered a strong first half of the year, and our performance thus far, in the third quarter, is reassuring. Therefore, we reiterate our guidance for the full year. Underlying operating margin of around 4%. Free cash flow of at least 2.2 billion euros. growth capital expenditures of around 2.7 billion euro and diluted underlying EPS growth at mid to high single digit rate based on an average euro to US dollar exchange rate for the full year of 2010. Diluted underlying EPS results at actual rates are subject to dollar volatility. As we look to the remainder of the year, while we are happy with the early momentum in our company performance, we have ambitious targets and we will continue to invest diligently to spur momentum through the holiday season and into the new year. Our teams in the US and in Europe remain laser-focused on harnessing the strengths of our own great local brand portfolio, delivering high-quality products, driving innovation, and ensuring low prices, to create compelling value that resonates with our customers. I'm confident that our focus on striking the balance between investing in growth and unlocking opportunities to drive operational excellence will continue to create value and increasing shareholder returns over time. With that, I 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 your first question. One moment please. And your first question comes from the line of William Woods from Bernstein. Please go ahead.

Hi, good morning. The first question is on stop-and-shop. One of the challenges with big investment cases is kind of getting comfortable with what you're doing. Are you able to give any concrete or kind of tangible examples of what you're investing in and then how that is driving network and market?

Sharon, can you start the question round?

Thank you. Can you hear me? Apologies, William. One moment, please. Please stand by. Can you hear me?

No, we can hear you, yeah. Thank you.

Thank you very much, sir. I will now hand over to William Woods from Bernstein for his first question. Please go ahead.

Hi, good morning team. The first question is on stop and shop. One of the challenges is understanding kind of what you're doing on a kind of tangible level and getting comfortable with how that's going to feed through into net promoter score and market share. Are you able to share any more kind of tangible examples of what you're investing and what you're changing that's driving market share or NPS change? And then the second one is, you talked about price investments in the release. But last year, we also talked about store remodels. How are the store, stop and shop store remodels going? And I suppose, how did the Food Lion OCR omni-channel remodels progress as well?

Thanks. Thank you, William. I had yesterday an interesting discussion with our brand president, Roger Wheeler, and asked him how we are cruising apart from the good numbers we see so far. We see positive volumes at Stop & Shop. We see a positive growing NPS score. We see price perception getting better. But at the same time, although more than 40% of the store network invested in pricing, and it will also go on in the second half, We, of course, strengthened our own brand assortment, and we're just doing this for the total U.S. We will remodel 20 more stores this year. We have a better supply chain, and that was already anticipated, a better supply chain than last year. So there are a number of elements there where we are quite optimistic about the stop-and-shop development. The team of Roger changed quite a bit on operations. on strategy, on procurement, and on merchandising. And those are elements which are giving us the confidence that we're on the right track. Having said that, and we talked about that before, to turn around a brand, as we have in mind, will take a little bit more than a quarter, but we are on the right track. And that's why we positively also share with you that we... that we have positive volumes, a positive NPS, a better price perception, and those are important ingredients for Stop and Shop to grow their brand.

Thank you. We will now go to the next question. And the next question comes from the line of James and Steve from Barclays. Please go ahead.

Good morning, Franz, Yolanda. So two questions from me, if that's okay. So firstly, I know you don't give quarterly guidance on divisional margins, but your U.S. margins were down year on year by about 30 basis points in both 1Q and 2Q. So my question is whether it's reasonable to hope for a more modest year-on-year decline in the second half, given you start to cycle that stop-and-shop price investment, or are there other things we should bear in mind? That's the first question. And the second one is you call out the dilutive impact on US margins from the good growth you're getting in online and pharmacy sales. And if my math is right, it looks like online is contributing just over one point to your US comp store sales. Can you give us some color on whether pharmacy sales are contributing similarly to US comp store growth? Yeah, any color there would be helpful. Thank you.

Thank you for the questions, and like you said, we don't give guidance on regional level, so let's start with the group guidance, and we're confident that we're well positioned to deliver the around 4%. Going a little bit more deeper, we are driving growth by investing in price, as you stated, which is at the expense of some margin offset also by heavy cost initiatives on our side. Also the dilutive impact indeed on growth of online and RICS is having an impact on the margin. Like you said, I can confirm that the price investments in itself weigh heavier on the first half year than on the second half year because we're cycling the price investments that we already started last year. So that is correct. On the positive side, U.S. margin, I would say positive volumes, online, although with a lower margin than the overall margin, it is profitable now, and we have our cost savings, €1.25 billion for the group as a whole, and we're trending well against that. On the negative side, we have the sales mix with the margin impact of RX and online. But all in all, I think we have all the tools available to sustain healthy margins in 2025 and to drive that long-term growth that we're aiming at. And your second question, online Rx, the Rx contribution to comes is a little bit less than the online contribution and overall Rx is somewhere between 6 and 7% of overall U.S. revenues.

That's very helpful. Thank you.

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

Good morning. Two questions. The first on guidance. You started the year with the dollar as a tailwind and is now a headwind. However, you issued only a small caveat on the full year APS impact. Would you say that your underlying operations are stronger than you anticipated initially? And if so, where more specifically? And my second question is about online sales profitability. You quoted four drivers. Could you tell us their respective importance, and do you see retail media mainly as a sales accelerator or a profit contributor? Thank you.

Thank you for those questions. Yes, if I look at our guidance, we are well positioned, had a solid start of the year, and that enabled us to reiterate that guidance. And what we did is we tried at least to give you a clear framework on the impact of ethics mainly on EPS because the impact is the most direct in that perspective. So we shared our guidance of mid to high single digit growth on underlying EPS in February this year, which was based at that time on the FX rate of 104. When presenting the Q1 numbers, we added to our guidance that our guidance holds true up to an average of 110 throughout the year. And that's the and framework that we've presented to you to interpret our results. We're happy with the way we're planning this far and you should bear in mind that our focus of course is on the underlying performance because that's what we can manage and that's where we are very confident that we will be able to deliver. Maybe two additional sentences because ethics is important. Our capital allocation remains the same so from a cash flow perspective we're able to manage this. And last but not least, we reiterate our guidance on year-on-year growth for our dividend. So all in all, I hope that that gives you enough perspective. Frans, over to you for the online sales.

Yeah, thank you, Jolanda. And I share the confidence. This is the first year of our Growing Together plan, and we are also comparable even without Profi at the 4% growth level, apart from all the other drivers which are going the right direction. It's a good year to ramp up the coming years, and that's what the teams are working on. Back to online profitability, Francois, your question. I think we have a fundamental change in our U.S. business, how we operate. We transferred a lot of dedicated fulfillment centers into in-store PICs. very well from a productivity point of view. We swept our store assets. We have Prism and Spectrum software now in four out of the five brands, and that is also increasing productivity and also a better customer experience. We have an automation element also in our e-commerce picking, especially in the Netherlands, where we have now two fully automated centers. We have, of course, a very strong relationship in the U.S. with DoorDash and Instacart. which is roughly now that platform business, roughly representing 40% of our total online business and growing fast. And we also see a lot of new customers coming towards us. As you heard from Yolanda and myself before, through the door, there's an Instacart network. And let's not forget that Bull is also part of the total profitability company, but Bull was always profitable for a long time already. So we now talk about fully allocated, which is the most conservative way of calculation. There are no, we don't cut any corners here, and fully allocated overall business profitability for our e-commerce for the group. And that's what we're pretty proud about and also came in a little bit earlier for the reasons I just mentioned. And retail media is a part of that, but it's not the main driver of this productivity gain.

Thank you. On retail media more specifically, do you see it as a sales accelerator or mainly a profit contributor?

Yeah, it's, you could, I mean, it's for sure a profitability contributor or another contribution to reinvest in our business. reinvest in our sales. So on one hand, profit, on the other hand, reinvestment and therefore sales generation. And the other thing that was interesting, Francois, is that our tools are pretty good in both Europe and in the U.S. So if we talk to our vendors who are also the advertisers for a big part, and we talk about our retail media conversion rates, they do very well. So also that means that it's not only for them an attractive tool to use because the tooling is really first class, we win prices in the U.S. in loyalty and retail media. But also in the end, if the tools are good and the conversions are good, then also there indirectly through our vendors is a reason to invest in our business and therefore also a sales generator. I think those two elements are also important elements which caused the positive volume growth in the U.S. as well.

Thank you very much.

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

Hi, thanks very much for taking the questions. So the first one, just going back to that margin, I guess the guidance for the year implies a kind of flattish margin in the second half to get there. Just looking beyond that, the average 4% over the period up to 2028, do we feel now that the U.S., the investments are going to start to match the cost savings and more broadly we found before for the EBIT margins. And the second one is just if you could give us a bit of an update on the more recent trends you've seen since the quarter ended. Have we seen any kind of significant changes versus the growth rates we've seen in the second quarter in the U.S. and in Europe? Thanks very much.

Sorry, could you repeat your second question, please, because I have not acoustically correctly got it.

Sorry, just trends to date you're seeing in Q3. Are you seeing anything significantly different versus what you saw in the second quarter, both U.S. and Europe, please?

Okay, thank you for your questions. And on the first question, yes, we're balancing our cost savings and our price investments. And, you know, we are really driving growth. So when we have the opportunity to invest a little bit more in price, to drive that growth faster and earlier, we will do so. So we're confident that the guidance given of around four and the average four in the four years period, that we will be able to manage that. And like I said, if there's an opportunity to drive growth a bit more, we will use that.

Yeah, and if I... I'm not talking about my confidence, but I'm talking about if P7 should be an interesting indicator for the ongoing positive acceleration of growth trend, then... then that will be the answer at the moment. We see a good growth in P7. I think it's a good proxy for the rest of the year, apart from the fact that the business is planning for the growth we have envisaged as a ramp-up for the total 2026, 2027, and 2028 years. So good growth trajectory, good momentum, and good acceleration.

Sorry, Francis, did you say P7 is an acceleration on the second quarter?

We shared with you that the second quarter was already an accelerator of growth compared to the first quarter, and we see a continuation of that type of growth levels also in P7.

Thank you very much.

Thank you. Your next question comes from the line of Robert Jan Vos from ABN AMRO Odo B8F. Please go ahead.

Yes. Hi. Good morning all. Two questions from my end. comparable growth excluding weather and calendar amounted to a 5.8% in Europe in the quarter. That's an acceleration from 4.8 in Q1. We saw that online sales growth accelerated as well, but probably not to the extent that it can explain the full 100 basis points. So can you elaborate a bit on this acceleration, talking a bit about volumes and prices? That's my first question. And my second question is, can you, Also elaborate on the incremental impairments. It's a nitty-gritty question, I know, but on the incremental impairments of 41 million for operating stores in the U.S., please. Thank you.

On your first question, we talk about total growth, so it's including new store openings. That's one thing, and there's also a little bit more inflation in both the U.S. and in Europe. And if you talk about the inflation in the U.S., food at home, 2.2. But for example, the Dutch market, we don't have a European number for the Dutch market. It's 4% in the meantime. So we see a little bit more inflation as well. It's not a nitty-gritty question, but Jolanda takes it with a lot of respect, the second one.

I take it with pleasure. No, the unusual, as we call them in the second quarter, were related to individual store impairments and the integration costs of growth fee. The individual store impairments were mainly related to stores in the U.S., and that was spread out through the portfolio. It's our regular process to, in a very conservative way, by the way, store by store, look at the financials and impair early if we think it's necessary. It's nothing that major. as major concerns in it.

It's the time of the year.

Yeah, it's the regular process of.

Periodic on store level. Yes. Conservative way of looking at the business and protecting ourselves.

We take our pain rather early than later.

Yep. That's very clear and helpful. So it's not necessarily focused on stop and shop. No, indeed.

As I said, it's set through our portfolio in the U.S., and it touches almost all the brands in this quarter. So, no, it's not specifically Stop and Shop related.

Very clear. Thank you.

Thank you.

Thank you. As a reminder, if you wish to ask a question, please press star 1-1 on your telephone keypad. We will now go to the next question. And your next question comes from the line of Sridhar Mamankali from UBS. Please go ahead.

Hi. Good morning. Thanks for taking my questions. If I can just follow up on the impairment, please. Most of my questions were asked, so I'm left with a couple of technical ones. So clearly there was 41 million in the quarter in the U.S. in terms of impairment. More broadly, if you stand back, there is a considerable step up in the run rate over the past three years in the US specifically, and 200 million plus per year run rate of impairment. So, we change the way you're testing for impairment or is it the online is sort of driving you to reassess to the stores MPV? So, that's the first one on impairments, more philosophically what is changing and how should we think about it? And secondly, cash flow. Can you talk a little bit about the drivers of working capital in Q2? It seems to be driven by payables, but if you could expand, that'll be great, and your expectations for the year on working capital.

Thank you. Thank you, Sridhar, for your questions, and they're important questions. And thank you for analyzing it so well. No, there is no increase in run rates because bear in mind we had the stop and shop closures which had a big impact. We had FreshDirect in there and we closed down in line with the online strategy that Frans was talking about, shifting from fulfillment to store first focus, switching our assets you could say, and we closed some fulfillment stores as well. So fulfillment facilities, sorry. So it's FreshDirect, stop and shop, which was of course a big event, and the fulfillment that maybe needs to be taken out of your numbers, and then you see that the underlying trend is quite stable over time. The working capital, I can be very short. It's just phasing. So overall, I expect to land on the projections we have internally, and the Q2, the year-to-date positive impact is phasing only.

And your expectations for the year, Yolanda, in terms of what we should be thinking for working capital?

We don't give our guidance on a working capital level. We reiterated our free cash flow, of course, to be a minimum of 2.2 billion.

Thank you. And, Sridhar, to be very precise, your 200 million assumed run rate is not a run rate for us. The 200 million is an incidental thing, which Yolanda explained. So don't take that, please, in your, for sure, not in our models. because that's not the expectation we have at all.

No, no, understood. Thank you very much.

Thank you. We will now take our final question for today. And the final question comes from the line of Ferdinand de Boor from De Graaf Petercam. Please go ahead.

Yes, good morning. Thank you for taking my question. And the first one is on the third party field growth in Europe. I think it flowed down to around 4% 9% in Q1, is there anything specific in that one? Yeah, that's actually my question, but it's already asked.

The only question, you've got a budget for two.

But maybe start with one, and then the second one comes in, Fran.

But actually, it's all asked what I actually wanted to ask.

Yolanda, third-party business. Maybe share a little bit more about Ball because there's quite some interesting and cool developments there.

Yeah, let's do so. So Ball, we're quite happy with Ball. We always reiterate because we talk about online profitability as a key milestone, but Ball has been profitable all along. So that's one point to keep in mind. They're growing market share. What I like is that they're also keeping their relative market share versus Amazon stable. So all in all, Bull is heading in the right direction, 2.12.5 by head growth in this quarter. And if you look at their third party sales and indeed showing great progress, that's stimulated in many ways. And one of the examples I'd like to share is that we've added more than 300 international suppliers on our platform, driving that third party growth and driving of course, the overall growth of Paul as well.

And I would say we see a little bit of an effect of the Far East Chinese markets developing in Europe. So we see, we think we see a little bit more muted growth on the TIMU and SHEIN side. And therefore, what Yolanda is mentioning is quite innovative that we have now 300 Far East suppliers, international suppliers, direct on our platform, so not indirect. And that growth we still see coming. So that's a little bit the relative development. Don't read too much into this. Look at BOL, 12.5% growth for the quarter. 10 categories with refurbished assortment new on board, quite some innovation there. So I feel pretty good about the board trajectory.

Maybe one question to clarify. Jolanda, I think you said also on the U.S. online business that was not profitable, or is the group level being profitable mainly driven by Europe?

So for the group as a whole, and also for the U.S. individual, we are profitable in the online business. And as Frans mentioned, in a fully allocated basis, so that really we have many perspectives to look at online profitability, but we are now fully allocated profitable online, both in Europe and in the U.S.

It's important to understand that very correctly, as Ilana just mentioned. Bull always has been profitable. the total group e-commerce business, including food, also profitable for the reasons we just mentioned. And we celebrate this here in-house because it's a very conservative look at fully allocated. It comes earlier than we expected it to be and has to do with the things we discussed before, but also the sales. And if you grow 14% group, 16% in the U.S., 12% in Europe, and the bull growth in line with the European growth, I think that's pretty strong.

And it's a good driver of our growth trajectory going forward, so that profitability really supports.

Yeah, I agree.

Okay, thank you very much.

Thank you, Fernand, and thank you, everybody, for your two-question limit today. It was all very nicely done. That completes our conference call for Q2. If you have any further questions, please feel free to reach out to the IR team. We're available at your disposal, and we will see you on Roadshow tomorrow. And we will see you at the various conferences then again after the summer break in September. So I wish you all a very nice and pleasant summer.

Thank you for joining us.

Thanks for joining us.

Thank you.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.