LENTA HAS DELIVERED 4.0% LIKE-FOR-LIKE RETAIL SALES GROWTH IN 1Q

St-Petersburg, Russia; 23 April 2020 - Lenta PLC, (LSE, MOEX: LNTA / "Lenta" or the "Company") one of the largest retail chains in Russia, is pleased to announce its consolidated sales and operating results for the first quarter ending 31 March 2020.

1Q 2020 Operating Highlights:

 

Events in 1Q 2020 and after the reported period:

• Lenta completed its redomiciliation by obtaining a permanent certificate of incorporation in Cyprus
• Lenta took comprehensive operating measures across its business in response to COVID-19
• Lenta launched its own online grocery store in partnership with delivery companies IGoods and Sbermarket.

 

Lenta's Chief Executive Officer, Herman Tinga commented:

"We had a good start of the first quarter, but eventually were faced with exceptional challenges due to COVID-19. Customer behaviour changed significantly in the second half of March. Various measures implemented by the authorities in response to COVID-19 resulted in considerable pressure on our stores as customers stocked up on essential goods.

Our commercial, logistic and operation teams responded well to the challenge. Due to the great commitment from all our employees, we secured the on-shelf availability of essential goods in our stores. At the same time we put a lot of effort into ensuring the safety and well-being of our colleagues and customers, as well as the continuity of our business operations in the most efficient way.

I am very proud of the contribution made by each member of our team during this period and pleased with the results we achieved. For the quarter our LFL sales, adjusted for the Leap Day in February, increased 4.0%. Both our LFL traffic and LFL ticket increased by 2.0%  

In the first two months of the year we experienced a strong customer inflow as a result of our own marketing efforts. March sales growth was mainly driven by customer response to COVID-19, which resulted in less traffic, but larger baskets. This trend is continuing in April.

The stocking up of essential goods triggered by COVID-19 also resulted in increased demand for online grocery purchases. Sales through our delivery partners almost tripled in the last weeks of March when compared to the last weeks of February. In response we accelerated our fast-delivery project Lentochka and moved the launch of online ordering through our own website forward.

I am pleased with our strong performance in 1Q. Looking ahead we will face many uncertainties, including further measures the authorities may implement in response to COVID-19, the duration of such measures, continued macro-economic volatility and consequent customer sentiment. We are working with different scenarios to evaluate any impact on our operations and performance. And we continue to focus on our cash discipline and operating efficiency."

 

COVID-19 Response

Governance. We established a COVID-19 response team, including top management members and functional experts, to monitor, coordinate and track daily actions. The COVID-19 response team cooperates closely with relevant authorities.

Safety and support for employees. We are taking comprehensive measures to ensure the safety and well-being of our employees. This includes, but is not limited to, restricting travel, daily health and temperature checks, remote work for office-based employees, intensified cleaning, making sanitizer available, providing special working regimes for vulnerable employees and providing personal protection equipment and protective barriers between cashiers and customers.

Safety and support for customers. We are taking every effort to ensure our customers continue feeling safe shopping in our stores. Protective barriers were placed at cashier desks and our own culinary sections, as well as visual markings on floors to control the distance between customers. We have equipped our stores with hand sanitizers for employees and customers. In addition, a large-scale communication programme was launched to encourage customers to keep their distance; use self-scanners and check-outs; and, when possible, pay by debit or credit. Additionally, customers with the high average ticket can also order free taxis within a radius of 10 km. We have also launched social initiatives to support vulnerable groups of customers. Elderly people and those at higher risk are encouraged to shop at specific hours. We have dedicated separate checkout lines for them and offered additional discounts as an incentive to visit our stores. A volunteer programme aimed at helping elderly people getting their daily groceries was established, and we support doctors, nurses and other medical workers by providing them with special discounts. We have other initiatives in progress with similar objectives.

Supply-chain. Our key task is to ensure support for our suppliers and maintain the on-shelf availability of food and non-food items. We have increased safety stocks for the essential goods and we are in constant contact with suppliers to ensure this.

 

Lenta's Operating Performance in 1Q 2020

Total sales increased 7.0% YoY, reaching Rub 106.0bn, driven by an increase in retail sales of 7.5% and partly offset by an ongoing decline in wholesale business. In 1Q 2020, sales to wholesale customers declined by 16.7% when compared to the first quarter of 2019.  

Strong LFL performance, combined with added selling space, resulted in retail sales growth of 7.5% in 2020. Retail sales reached Rub 104.4bn in the reported period versus Rub 97.1bn in the same period of the last year. Traffic increased 5.1%, while the average ticket rose 2.3%, reaching Rub 1,021.

Hypermarket sales dynamics improved over 4Q 2019 due to an LFL sales growth of 3.2%, the contribution from Leap Day in February and an increase of 1.9% in the format's selling space over the year. As a result, total sales in hypermarkets reached Rub 94.5bn, implying an increase of 6.9% YoY.

Supermarket sales increased 14.2% in 1Q 2020, driven by accelerated LFL sales growth, although the selling space decreased marginally by 0.1% YoY. The supermarket share accounted for 9.3% of Lenta's total sales, an increase from 8.5% in 4Q 2019.

Total sales performance

 

In the 1Q Lenta continued working on its digital marketing activities, communication initiatives and the development of its loyalty programme to reach new and existing customers. The Company maintained its focus on providing special offers tailored to the individual customer to increase traffic and basket size.

Lenta's mobile app, which was launched in October 2018, attracted 1.1mn new users in the first quarter, bringing the total number to more than 6.0mn. Lenta took further steps to enrich the mobile app's functionality, delivering a better customer experience through enhancing personalized promo offerings.

The continued development of analytical models enabled the Company to improve its product range and promotions effectively, as well as predict and respond to changes in customer preferences. The number of active loyalty cardholders increased to 16.0mn as at 31 March 2020 (+8.0% YoY), with the share of transactions made with the loyalty card staying at 97%.

 

LFL sales performance

 

 

 

LFL retail sales increased 4.0% in 1Q 2020, significantly improving from a decline of 3.6% in 4Q 2019 and despite the high base of 1Q 2019. LFL sales growth was driven by an increase in LFL traffic of 2.0% and LFL ticket growth of 2.0%. During the reported period, five hypermarkets and three supermarkets entered the LFL panel.

Lenta has been winning over new customers in both new and LFL hypermarkets and supermarkets with an ongoing growth in the number of customers.

LFL sales increased 3.2% in the hypermarket format driven by both higher traffic and an increase in average ticket. LFL traffic increased 0.4% driven by an inflow of new customers. A combination of effective promo-campaigns and in-store communication initiatives contributed to traffic performance. The LFL average ticket increased 2.8% reflecting the attractiveness of hypermarkets for big-basket purchases and one-stop shopping once a week in light of the authorities' response to COVID-19. The increase in number of items per basket, combined with the ongoing trading-up effects in 1Q 2020, offset on-shelf deflation in the same period. Lenta's hypermarkets continued to perform in a deflationary environment due to overall inflation dynamics in Russia in the first quarter and more intensive promo-activity when compared to the previous year.

Supermarket LFL sales accelerated in 1Q 2020 to 12.4% when compared with 4.7% in 4Q 2019, driven by both traffic and ticket growth. LFL traffic increased 9.6%, being driven by new customer inflows and higher frequency of visits. The average ticket increased 2.6%, driven by trading-up effects, which offset on-shelf deflation in the format. Lenta continued working on changes to its customer-value proposition in its supermarkets to enhance the attractiveness of stores to customers and strengthen its position in this format.

LFL sales growth, including Leap Day effect

 

 

 

 

 

 

1Q 2020 monthly operational results

 

The performance of retail sales has been improving throughout the first quarter with total sales accelerating from 1.3% YoY growth in January to 11.2% YoY in March. The average ticket improved every consecutive month.   

Retail sales increased 9.4% in February due to a positive effect from Leap Day and effective promotional campaigns. Traffic increased 10.4%, representing a strong customer inflow coupled with a higher frequency of visits in both formats. The increase in traffic largely offset the lower average ticket, which declined due to the lower number of items per basket when compared to the previous year.

Retail sales growth accelerated to 11.2% in March, mainly due to a change in customer behaviour amid COVID-19. Traffic increased 0.8%, representing a decline of 0.3% in hypermarkets and an increase of 6.2% in supermarkets. While Lenta continued attracting new unique customers, this was offset by a decline in frequency of visits. However, a 10.3% increase in average ticket due to the increased number of items per basket largely compensated for lower traffic.

Lenta Online

The Company has been developing several separate projects to serve the increasing demand for online grocery shopping across Russia.

Partnership with delivery companies

Lenta has been developing partnerships with delivery companies across Russia. As of 1Q 2020, cooperation has been carried out with 22 delivery companies in 29 Russian cities. 

In 1Q 2020, the number of orders increased 131.5%, mainly due to the expansion of partnerships in 2019 and cities of presence, as well as an increased number of orders due to changes in customer behaviour. As a result, sales through this channel increased by 109.5% YoY and amounted to approximately 0.5% of total sales, vs. 0.3% in 1Q 2019 and 0.2% for all of 2019.

In 1Q 2020, Lenta launched its online store, offering customers the opportunity to order through our own website. Delivery is carried out by the Company's partners IGoods and Sbermarket and is currently available in 29 large and regional Russian cities.

Lentochka.

The pilot project was launched in 4Q 2019 with the opening of two dark stores in urban areas of Moscow to test quick delivery based on a limited number of SKUs (~1,500).

Due to changing customer behaviour and significant increased demand for online grocery purchases, Lenta accelerated the roll-out of Lentochka. During 1Q 2020, the Company expanded its operations to five additional locations within two weeks based on existing supermarkets, bringing the total number of locations to seven. The number of SKUs available to order was expanded to ~2,500, making it possible to cover a wider range of customer needs.

Lenta's Store Base

In 1Q 2020, Lenta had a total of 380 stores, including 249 hypermarkets and 131 supermarkets. That represents a total selling space of 1,489,439 sq.m, an increase of 1.7% YoY. The Company retains its presence in 88 cities across the country.

Outlook

COVID-19 and the volatility of the rouble may have a material impact on the performance of the Company in 2020. We continue working with various scenarios to understand the potential impact on Lenta's business and prepare appropriate measures. This in part depends on further measures the authorities may implement in response to COVID-19, the duration of such measures, continued macro-economic uncertainty and consequent customer sentiment. The full impact is impossible to predict with a high degree of certainty. At this stage it would not be prudent to provide further guidance for 2020.

The Company will inform the market in the case of any revision of guidance.

About Lenta

Lenta is the largest hypermarket chain in Russia and the country's fourth-largest retail chain. The Company was founded in 1993 in St. Petersburg. Lenta operates 249 hypermarkets in 88 cities across Russia and 131 supermarkets in Moscow, St. Petersburg, and the Siberia, Urals and Central regions, with a total of approximately 1,489,439 sq.m. of selling space. The average Lenta hypermarket store has a selling space of approximately 5,500 sq.m. The average Lenta supermarket store has selling space of approximately 840 sq.m. The Company operates 12 distribution centres.

The Company's price-led hypermarket formats are differentiated in terms of their promotion and pricing strategies as well as their local product assortment. The Company employed approximately 48,391 people as of 31 December 2019.

The Company's management team combines a mix of local knowledge and international expertise coupled with extensive operational experience in Russia. Lenta's largest shareholders include Severgroup, which is committed to maintaining high standards of corporate governance.

Lenta is listed on the London Stock Exchange and on the Moscow Exchange and trades under the ticker: 'LNTA'

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Forward-looking statements:

This announcement includes statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the fact that they do not only relate to historical or current events. Forward-looking statements often use words such as "anticipate", "target", "expect", "estimate", "intend", "expected", "plan", "goal", "believe", and other words of similar meaning.

 

By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances, a number of which are beyond Lenta's control. As a result, actual future results may differ materially from the plans, goals and expectations set out in these forward-looking statements.

 

Any forward-looking statements made by or on behalf of Lenta speak only as at the date of this announcement. As required by any applicable laws or regulations, Lenta undertakes no obligation publicly to release the results of any revisions to any forward-looking statements in this document that may occur due to any change in its expectations or to reflect events or circumstances after the date of this document.

Lenta's stores are included in the LFL store base starting 12 months after the end of the month in which they are opened. Both total sales growth and LFL sales growth are reported excluding VAT;

Cardholders who made at least two purchases at Lenta in the 12 months leading up to 31 March 2020 are considered active.

Adjusted for 29  February due to the leap year

Additional operating day (29  February) due to the leap year

FTE (full-time equivalent). Average FTE for FY 2019 was 51,908 employees