EBIT margin levels at Lidl's international operations are at their lowest level since 2012, according to an analysis of its 2017/18 results by Barclays European Food Retail Equity Research.
Sales at the group's international business, which accounts for 60% of overall turnover, stood at €46.1 billion last year – an increase of 11.0% (11.4% if adjusted for currency effects) – according to the results, which are available on the UK Companies House website.
The period covers the 12 months to February 2018.
'Significant' Growth
'Lidl notes that sales growth last year has been "more significant than planned and that revenues grew in almost all countries during the period". Note that in FY17 revenues were generated in the US for the first time,' Barclays wrote in its assessment.
However, the group saw its EBIT margin contract by 40 basis points, to 4.0% – its lowest level since 2012 – due to 'expansion-related start-up costs,' added Barclays.
'This margin was driven mainly by 40bps gross margin contraction and a further increase in staff costs (+10bps to 9.2% of sales). On the other hand, depreciation charges remained broadly stable, while other operating costs slightly declined,' it furthered.
The decline in net profit that Lidl experienced in full-year 2017 was 'in line with its budget', however.
Elsewhere, capex at Lidl dropped to €4.0 billion in FY 2017/18, from €4.3 billion the previous year, while net debt rose to €8.1 billion (up from €5.5 billion).
'This reduction in capex in 2017 does not come as a major surprise,' Barclays wrote in its assessment. 'As a reminder, Lidl’s majority shareholder, the Schwarz group, called for greater emphasis on profitability and capex discipline. Its CEO, Klaus Gehrig, announced last year that Lidl needed to become "leaner and simpler", adding that some stores resembled "glass palaces" with entrance halls that waste space and a lack of cost control.
'We believe that the replacement of Lidl’s CEO in February 2017, as well as the group’s decision also in 2017 to scale down its online strategy and to slow down its expansion in the US in early 2018, illustrate the more disciplined capex strategy for the hard discounter,' it added.
Positive Progress
Looking ahead, Lidl said that it is expecting 'positive business progress' in full-year 2018/19 (to February 2019), while forecasting a 'moderate sales growth and a stable consolidated net income'.
The group has new-opening plans in several countries, as well as an intention to enter new markets such as Estonia and Latvia in the coming years.
'Despite the reduction of its capex last year, Lidl’s investments as a percentage of its sales (c9%) remain at the high end of the sector average,' Barclays wrote. 'It’s worth noting that Lidl’s stores tend to be relatively basic, so spending a given percentage of sales on capex may buy a greater amount of new space than for some of its peers.'
© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.
