DJ Magnit Reports 6.9% LFL Sales Growth and 7.2% EBITDA margin
MAGNIT PJSC (MGNT)
Magnit Reports 6.9% LFL Sales Growth and 7.2% EBITDA margin
29-Oct-2020 / 10:00 MSK
Dissemination of a Regulatory Announcement that contains inside information
according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
Magnit Reports 6.9% LFL Sales Growth and 7.2% EBITDA margin
Krasnodar, Russia (29 October, 2020): Magnit PJSC (MOEX and LSE: MGNT; the
Company), one of Russia's leading retailers, announces its 3Q and 9M 2020
operating and unaudited financial results.
3Q 2020 key operating and financial highlights:
- Total revenue increased by 11.9% y-o-y to RUB 383.2 billion;
- Net retail sales reached RUB 371.0 billion representing 11.4% y-o-y
growth;
- LFL[1] sales growth stood at 6.9% driven by 12.4% average ticket growth
and 4.9% traffic decline;
- The Company opened 349 stores on gross basis (187 convenience stores,
one supermarket and 161 drogeries). As part of the Company's ongoing
efficiency improvement campaign, 89 stores were closed resulting in a net
store addition of 260 and the total store base as of September 30, 2020 of
21,154;
- Addition of selling space amounted to 80 thousand sq. m. bringing total
selling space to 7,371 thousand sq. m. (representing 3.2% y-o-y growth);
- The Company redesigned three convenience stores and three supermarkets.
As at September 30, 2020, 71% of convenience stores, 25% of supermarkets
and 55% of drogeries are either new or refurbished;
- Gross profit margin stood at 23.8% - an increase of 134 bps y-o-y on
improved commercial terms, lower promo activity in a combination with
better promo coverage and higher promo margin, lower shrinkage and supply
chain costs partially offset by ongoing cost of the loyalty program;
- EBITDA was RUB 27.6 billion with 7.2% margin demonstrating the largest
y-o-y improvement among three quarters of this year by 133 bps driven by
strong gross margin dynamics and lower SG&A expenses;
- Net income increased by 174.1% y-o-y and stood at RUB 9.6 billion. Net
income margin increased from 1.0% in 3Q 2019 to 2.5% in 3Q 2020.
Jan Dunning, President and CEO of Magnit, commented:
"In the environment of unprecedented challenges, we continued being
absolutely committed to key business priorities, while making customers'
safety and satisfaction a centric one.
We are pleased with the third quarter results that came above our
expectations despite macro headwinds. We see gradual normalization of
consumer shopping behaviour with traffic recovery and stabilization of the
basket growth. We have again delivered strong LFL sales growth thanks to
consistent qualitative improvements in the stores. Strong momentum continues
in October with some acceleration of LFL sales growth boding well for the
fourth quarter.
We observe further progress in efficiency improvement of our stores - strong
returns across all out formats and regions. We are gradually resuming our
expansion and redesign programs and expect further acceleration in the next
periods with continued focus on returns.
Even though direct positive impact of pandemic on top-line is diminishing,
but we still bear COVID-related expenses, our sales remains solid and
profitability continues gaining traction with the largest y-o-y expansion
among three quarters of this year. Strong sales and EBITDA coupled with the
first working capital improvements bodes well for higher cash flow
generation and further deleveraging. With that we will jump into the next
year with completely different financial position and ambitions".
Key events in 3Q 2020 and after the reported period:
- The Company's commercial function was restructured, including the launch
of a dedicated commercial procurement unit. Jan Dunning, Magnit CEO has
assumed the additional role of acting Commercial Director and is leading
the critical initiatives in the Company's reorganization process;
- Magnit's Board of Directors approved the Program and the Prospectus of
RUB bonds for a total amount of up to RUB 100 billion, enabling future
bond issuance under a simplified procedure;
- Magnit expanded its discounter format pilot and opened a further two new
stores under the My Price banner. The pilot now includes five discounters.
By the end of 2020, Magnit plans to open another five stores under the new
concept;
- The Company has updated the Magnit City store concept, and as part of
the pilot, plans to open a further 30 Magnit City stores by the end of
2020;
- Magnit launched express delivery service for customers in a partnership
with Delivery Club and Yandex.Eda;
- Magnit launched an online pharmacy pilot scheme that enables customers
to order products from over 100 pharmacies throughout Moscow and the
Moscow region;
- Magnit opened a new distribution center in Novosibirsk;
- Magnit joined the UN Global Compact strengthening the Company's Retail
with Purpose strategy for long-term sustainable transformation.
3Q and 9M 2020 Operating Results
3Q 3Q Change Change, 9M 9M Change Change,
2020 201 % 202 2019 %
9 0
Total Net 370, 332 37,987 11.4% 1,1 975, 138,93 14.2%
Retail Sales, 952 ,96 14, 976 4
million RUB 5 910
Convenience 284, 254 30,313 11.9% 860 750, 110,12 14.7%
Stores[2] 552 ,23 ,14 016 6
9 2
Supermarkets[3] 48,6 49, -600 -1.2% 149 146, 3,356 2.3%
63 263 ,61 262
8
Drogerie Stores 34,9 28, 6,274 21.8% 97, 78,4 18,798 24.0%
93 719 275 77
Other 2,74 745 2,000 268.5% 7,8 1,22 6,654 544.7%
Formats[4] 4 76 2
Number of 1,20 1,2 -17 -1.4% 3,4 3,47 14 0.4%
Tickets, mln 0 17 86 2
Convenience 1,00 1,0 -22 -2.1% 2,9 2,94 -13 -0.4%
stores 6 28 28 0
Supermarkets 86 96 -10 -10.7% 254 284 -30 -10.6%
Drogerie Stores 99 90 10 10.8% 281 243 37 15.4%
Other Formats 8 3 6 205.7% 24 4 20 450.2%
Average 309 274 36 13.0% 320 281 39 13.8%
Ticket[5], RUB
Convenience 283 247 36 14.4% 294 255 39 15.2%
stores
Supermarkets 566 512 55 10.7% 590 515 75 14.5%
Drogerie Stores 353 321 32 10.0% 347 323 24 7.4%
Other Formats 325 259 65 25.1% 318 266 52 19.6%
Number of 21,1 20, 657 3.2% 21, 20,4 657 3.2%
Stores (EOP) 54 497 154 97
Convenience 14,6 14, 192 1.3% 14, 14,5 192 1.3%
Stores 99 507 699 07
Supermarkets 469 467 2 0.4% 469 467 2 0.4%
Drogerie Stores 5,98 5,5 463 8.4% 5,9 5,52 463 8.4%
6 23 86 3
Store Openings 349 742 -393 -53.0% 847 2,52 -1,673 -66.4%
(Gross) 0
Convenience 187 396 -209 -52.8% 426 1,42 -1,000 -70.1%
Stores 6
Supermarkets 1 3 -2 -66.7% 2 3 -1 -33.3%
Drogerie Stores 161 343 -182 -53.1% 419 1,09 -672 -61.6%
1
Store Closures 89 129 -40 -31.0% 418 371 47 12.7%
Convenience 69 120 -51 -42.5% 349 346 3 0.9%
Stores
Supermarkets 4 2 2 100.0% 6 3 3 100.0%
Drogerie Stores 16 7 9 128.6% 63 22 41 186.4%
Store Openings 260 613 -353 -57.6% 429 2,14 -1,720 -80.0%
(Net) 9
Convenience 118 276 -158 -57.2% 77 1,08 -1,003 -92.9%
Stores 0
Supermarkets -3 1 -4 -400.0% -4 0 -4 n/a
Drogerie Stores 145 336 -191 -56.8% 356 1,06 -713 -66.7%
9
Total Selling 7,37 7,1 228 3.2% 7,3 7,14 228 3.2%
Space (EOP), 1 43 71 3
th. sq.m
Convenience 5,00 4,9 105 2.1% 5,0 4,90 105 2.1%
Stores 5 00 05 0
Supermarkets 940 941 0 0.0% 940 941 0 0.0%
Drogerie Stores 1,38 1,2 104 8.1% 1,3 1,28 104 8.1%
4 80 84 0
Other Formats 42 22 19 85.7% 42 22 19 85.7%
Selling Space 80 207 -127 n/a 132 718 -586 n/a
Addition (Net),
th. sq.m
Convenience 49 123 -74 n/a 53 456 -403 n/a
Stores
Supermarkets -3 2 -5 n/a -8 -1 -7 n/a
Drogerie Stores 34 72 -38 n/a 81 244 -163 n/a
Other Formats 1 11 -10 n/a 6 19 -14 n/a
3Q and 9? 2020 LFL results
3Q 2020
LFL composition, % Average Ticket Traffic Sales
Total 12.4% -4.9% 6.9%
Convenience stores 13.6% -5.0% 7.8%
Supermarkets 10.6% -11.3% -1.9%
Drogerie Stores 9.8% 2.5% 12.6%
9? 2020[6]
LFL composition, % Average Ticket Traffic Sales
Total 13.4% -5.3% 7.3%
Convenience stores 14.4% -5.5% 8.2%
Supermarkets 14.1% -11.5% 1.0%
Drogerie Stores 7.3% 2.8% 10.3%
Trading performance
Total sales in 3Q 2020 grew by 11.9% y-o-y to RUB 383.2 billion.
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DJ Magnit Reports 6.9% LFL Sales Growth and 7.2% -2-
Net retail sales in 3Q 2020 grew by 11.4% y-o-y driven by a combination of
3.2% selling space growth and 6.9% LFL sales growth. For a third consecutive
quarter, net retail sales growth outpaced selling space growth as strong LFL
results have led to a continuous improvement of sales densities since
January 2020. Overall sales densities in 3Q 2020 improved by 1.4% q-o-q and
3.6% y-o-y while in the Company's main convenience store format they
improved by 5.4% y-o-y.
All operating regions showed solid positive LFL sales growth with the
North-West, Siberia and Moscow outpacing the rest.
LFL sales growth in 3Q 2020 remained almost in line with the Company's 2Q
2020 result and well above CPI. Mature stores continue to be the main driver
of the Company's strong LFL performance with only 607 stores (incl. 299
convenience and 308 drogeries) entering LFL panel in 3Q. Only 5% of Magnit's
selling space is currently in the ramp-up phase with 95% already matured.
As in the previous quarter, average ticket was the main driver of LFL sales
growth. This reflects continued trend of lower frequency of visits
overcompensated by strong basket growth driven by increased spending per
visit.
LFL average ticket growth in 3Q 2020 was 12.4% predominantly due to
customers 'trading up' purchases and higher on-shelf inflation. The number
of articles per basket, which was the main driver in the previous quarter,
started easing from July.
This was combined with gradual recovery in customer traffic from -14.0% in
2Q 2020 to -4.9% in the reported quarter reflecting continued normalization
of shopping behaviour.
Promo intensity was still lower y-o-y mainly on the back of more normal
shopping patterns and different marketing tactics leading to a shift from
"bulk" to personalized actions. The level of promo was moderately higher
q-o-q due to seasonal factors.
In the second half of September the sales of dry and non-food categories
started to pick up, however sales were a tenth of the levels seen in March.
The impact of the pandemic on the consumer behaviour is now insignificant as
customers are taking a more rational approach to forward buying of
non-perishable goods.
Magnit's cross-format loyalty program continued to gain popularity among
customers during the period. Over 75 million cards have been issued since
the start of the pilot in March 2019 with the number of active users
approaching 39 million. Company-wide, the share of tickets using the loyalty
card was 50% with penetration in sales reaching 67%. The loyalty program is
delivering positive cross-format gains with sustainable growth of customers
visiting 2+ store formats (over 40% of Magnit customer base at the end of
3Q).
Store network development and performance by format
The convenience segment generated 76.7% of total net retail sales in the
reported quarter. In 3Q 2020 Magnit resumed its expansion program and opened
(gross) 187 convenience stores compared to 94 in 2Q 2020. The Company
continued its efficiency campaign and closed 69 convenience stores - less
than in 2Q (107) and less than originally planned as some stores
demonstrated significant operational improvements and were excluded from the
closure pipeline. As a result, Magnit added 118 stores (net) during 3Q 2020,
bringing the total number of convenience stores to 14,699. The selling space
of convenience stores increased by 2.1% y-o-y to 5,005 thousand sq. m. as of
September 30, 2020. Sales in the convenience format grew by 11.9% driven by
LFL sales growth of 7.8% in 3Q 2020. Traffic across this segment
demonstrated gradual recovery from -14.3% in the previous quarter to -5.0%
in 3Q 2020 as restrictions had been lifted and customers started to resume
their normal shopping patterns. LFL average ticket growth remained strong
having normalized from 26.3% in 2Q 2020 to 13.6% in 3Q 2020 and
overcompensating negative LFL traffic growth.
Supermarkets accounted for 13.1% of the Group's net retail sales. During the
reported quarter the total number of supermarkets decreased by three stores
to 469 following one store opening and four closures. Selling space across
this format remained almost flat y-o-y and stood at 940 thousand sq. m. The
supermarket segment is the most affected segment in the pandemic environment
as customers continue to prefer convenience stores to larger formats,
especially those located in the shopping malls. Magnit's standalone
supermarkets demonstrate better recovery trends compared to the Company's
168 stores that are in shopping centers. LFL traffic remained negative but
recovered from -20.2% in the previous quarter to -11.3% in 3Q 2020
translating into a stabilization of LFL average ticket growth to 10.6%. As a
result, supermarkets demonstrated negative LFL sales growth of 1.9%. Given
almost flat selling space growth this resulted in negative sales growth of
1.2%. This year Magnit did not repeat the coupon campaign launched in 3Q
2019 in the large formats as despite generating additional traffic and
ticket expansion, this campaign had a negative impact on profitability last
year. Nowadays Magnit is exploring alternative promo formats aimed at higher
promo efficiency, including additional bonuses for every RUB 1,000 spent in
supermarkets, progressive bonus system, and canvassing of convenience store
customers.
The share of drogerie format as a proportion of the total net retail sales
continued to expand and reached 9.4% in the reported quarter. During 3Q 2020
Magnit opened (net) 145 cosmetics stores (compared to 336 in 3Q 2019) and
added 34 thousand sq. m. of selling space delivering an 8.1% increase in
selling space, the highest increase across all formats. Driven by this
increase in selling space and LFL sales growth of 12.6%, sales grew 21.8%
representing the strongest performance among all Magnit's store formats and
an acceleration from the 2Q 2020 level of 9.3%. LFL traffic growth improved
significantly from -2.5% to a positive territory at 2.5%. Traffic recovery
did not lead to softer LFL average ticket growth - it remained strong at
9.8% growth.
During 3Q 2020 three convenience stores and three supermarkets were
redesigned resulting in the combined share of refurbished and new stores at:
71% for convenience stores, 25% for supermarkets and 55% for the drogerie
format. For more information on FY 2020 forecast - see guidance section.
3Q 2020 Monthly Operating Results
July Change August Change September Change
Total net retail 131,185 14.3% 124,207 10.7% 115,559 9.0%
sales, RUB
million
Convenience 100,978 14.7% 94,884 11.3% 88,689 9.6%
Stores
Supermarkets 17,356 3.2% 16,510 -2.2% 14,797 -4.9%
Drogerie Stores 11,965 23.5% 11,909 20.9% 11,119 21.1%
Other Formats 886 437.5% 904 269.3% 954 184.8%
Number of 412 0.9% 401 -2.5% 386 -2.6%
tickets, million
Convenience 346 0.2% 336 -3.2% 324 -3.4%
stores
Supermarkets 30 -9.2% 29 -11.5% 27 -11.5%
Drogerie Stores 33 13.0% 34 9.4% 32 10.0%
Other Formats 2.7 324.3% 2.8 212.0% 2.9 138.7%
Average 318 13.4% 309 13.5% 299 12.0%
ticket[7], RUB
Convenience 292 14.5% 282 15.0% 274 13.5%
stores
Supermarkets 583 13.7% 568 10.5% 547 7.5%
Drogerie Stores 358 9.3% 355 10.4% 345 10.1%
Other Formats 327 28.6% 318 24.9% 328 23.6%
Number of Stores 20,900 n/a 20,971 n/a 21,154 n/a
(EOP)
Convenience 14,579 n/a 14,620 n/a 14,699 n/a
stores
Supermarkets 469 n/a 470 n/a 469 n/a
Drogerie Stores 5,852 n/a 5,881 n/a 5,986 n/a
Store Openings 44 n/a 94 n/a 211 n/a
(Gross)
Convenience 25 n/a 58 n/a 104 n/a
stores
Supermarkets 0 n/a 1 n/a 0 n/a
Drogerie Stores 19 n/a 35 n/a 107 n/a
Store Closures 38 n/a 23 n/a 28 n/a
Convenience 27 n/a 17 n/a 25 n/a
stores
Supermarkets 3 n/a 0 n/a 1 n/a
Drogerie Stores 8 n/a 6 n/a 2 n/a
Store Openings 6 n/a 71 n/a 183 n/a
(Net)
Convenience -2 n/a 41 n/a 79 n/a
stores
Supermarkets -3 n/a 1 n/a -1 n/a
Drogerie Stores 11 n/a 29 n/a 105 n/a
Total Selling 7,290 4.0% 7,316 3.4% 7,371 3.2%
Space (EOP), th.
sq. m.
Convenience 4,956 2.8% 4,973 2.4% 5,005 2.1%
stores
Supermarkets 941 0.4% 942 0.0% 940 0.0%
Drogerie Stores 1,352 9.4% 1,359 7.9% 1,384 8.1%
Other Formats 41 203.6% 41 130.6% 42 85.7%
Selling Space -0.4 n/a 26.0 n/a 54.7 n/a
Added (Net), th.
sq. m.
Convenience 0.2 n/a 17.2 n/a 31.4 n/a
stores
Supermarkets -3.0 n/a 1.4 n/a -1.7 n/a
Drogerie Stores 2.3 n/a 7.0 n/a 24.7 n/a
Other Formats 0.2 n/a 0.3 n/a 0.3 n/a
Net retail sales growth in each month of the third quarter demonstrated
gradual deceleration in line with selling space growth dynamics reflecting
Company's decision to slowdown expansion focusing on improvements in the
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