"I am pleased to report a second quarter performance that places us well on track to achieve our strategic aspirations and financial goals for 2024. It has been a busy quarter, as we launched our refreshed company strategy, 'Growing Together,' internally and externally. As I said in May, we have a strong foundation, and we are ready to set the pace for change in our industry. We believe we have a very compelling set of ambitions, which, on delivery, will yield strong growth for our company and our stakeholders.
“At the same time, we saw strong and improving momentum at our brands in both regions. Group net sales grew 0.7% at constant rates, while comparable sales excluding gasoline increased by 0.6%. Excluding calendar shifts, the latter would have been 1.0 percentage points higher. As inflation moderated and promotional opportunities increased, supported by vendors, our brands continued to deliver great value to customers, leveraging their loyalty programs and broad assortment of national and own-brand products, and offering a seamless shopping experience both online and in-store.
“As growth rates in the industry normalize, our omnichannel ecosystems are proving a major competitive advantage and source of market share gains. In Q2, online sales were again fueled by double-digit growth in online grocery in both Europe and the U.S., excluding the divestment of FreshDirect. Here we are seeing both new customer growth and strong customer retention. At the same time, we are making strides in ecommerce profitability. In the U.S., the shift in demand to more profitable channels and our initiatives to optimize the store-first fulfillment model are paying off. In the Netherlands, Albert Heijn has opened its second fully automated Home Shop Center (HSC) in Zwolle. Our experience with the Barendrecht facility, which is performing above expectations in areas such as order completeness and order window optionality, gives us confidence that we have the right model and technological setup to deliver great customer service in an economical way in the long-term.
“We are also well on track with our Save for Our Customers program for 2024. In addition, we are starting to benefit from structural changes in our business related to the Belgium Future Plan and cost savings initiatives in Europe and the U.S. that were initiated over the past 12 months. Our delivery of an underlying operating margin of 4.2% puts us in a good position to take further steps this year to accelerate growth investments, and comes at a time when we see encouraging volume trends in both regions.
"With the strong operational execution by our teams and associates in the quarter, diluted underlying EPS was €0.65, an increase of 4.5% at actual rates. On an IFRS basis, we delivered operating income of €790 million and diluted EPS of €0.53. IFRS results were negatively impacted by non-recurring costs, largely related to the costs associated with the transition of stores as part of the Belgium Future Plan. As a result, I am pleased to report that we will pay an interim dividend of €0.50 per share, in line with our dividend policy.
“In the U.S., net sales declined by 1.5% at constant rates, while comparable sales growth excluding gasoline declined by 0.4%, negatively impacted by 1.2 percentage points from calendar shifts. Therefore, excluding the impacts of calendar shifts and the divestment of FreshDirect, we saw a sequential improvement in growth rates during the quarter, as volume trends continued on a positive trajectory. By putting increased attention on the value of own-brand products while making it easier to earn loyalty rewards, the U.S. brands are laser-focused on investing in our winning customer value proposition. One example of this is the 'Compare & Save’ campaigns at Stop & Shop and Giant Food, which are trending favorably with higher sales, in both dollars and units.
“During our Strategy Day in May, we communicated that we would take decisive and deliberate actions to ensure a stable and thriving future for Stop & Shop. We’re moving forward confidently in three key areas. First, delighting customers through improvements to the customer value proposition and differentiation. Second, improving the cost structure. And third, optimizing the store portfolio. Regarding the latter, Stop & Shop will close 32 underperforming stores by year end. We expect to recognize a net impact to sales, in 2024, of between $100 and $125 million and, in 2025, between $550 and $575 million. We also expect to recognize a non-recurring pre-tax charge of between $160 and $210 million in Q3 2024. By creating a healthy store base, the team at Stop & Shop will be able to focus attention on the markets that are most important, including those where the brand has strong density, holds a strong market position or has stores that are performing well.
“In Europe, as inflation rates moderate compared to a year ago, our brands are doubling down on their winning strategies to drive market share growth, for example, by offering compelling promotions to drive customer traffic and expanding the assortment of 'Price favorites.’ Net sales in Europe grew by 4.3% at constant rates, while comparable sales growth excluding gasoline was 2.4%, despite the end of tobacco sales at Albert Heijn, which had a negative impact of 2.1 percentage points. At Delhaize Belgium, to date, 108 stores have been transitioned to their new owners, and we expect that conversions will be completed in Q4. The improved customer experience has already resulted in Delhaize's market shares exceeding preannouncement levels. In addition, the higher sales leverage and change in operating model, along with cycling the impact from prior year strikes, have contributed to the recovery of underlying operating margin in Europe, which reached 3.7%.
“Our purpose and commitments go beyond our quarterly financial performance. We remain dedicated to advancing our journey towards healthier communities and planet, a cornerstone of our Growing Together strategy. Together with associates, customers, communities and our supply-chain partners, we are increasing cooperation to drive a positive impact. I am proud that, in July, we started a sponsorship with The Global FoodBanking Network, through which we are playing a crucial role in redirecting surplus, nutritious food to those who need it most. We also published our 2024 Human Rights Report, which provides an update on our progress over the past two years on our Roadmap on Human Rights. The report includes several major updates to our Standards of Engagement for suppliers and highlights of our brands’ initiatives to improve conditions for workers across the value chain.
“With positive momentum going into the second half of the year, I am confident that we are more than well on track to achieve our commitments for 2024. The stronger-than-planned performance in the first half of 2024 provides opportunities to already take some further actions in support of our Growing Together strategy and financial long-term ambitions in the second half of 2024, in particular, initiatives such as those we have just announced at Stop & Shop as well as other price investments we outlined in our new strategy. With the economic environment remaining dynamic, focusing on our growth plan and keeping our own house in order will ensure we are well positioned to drive brand strength and market share growth in the coming periods. We are excited by the potential of our plan and the value creation potential we are striving to unlock.”
