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DIA: 2Q’20 RESULTS (ANÁLISIS BANCO SABADELL)

2Q'20 vs. 2Q'19 Results
Sales: € 1.819 Bn (+2.2% vs. +2.2% expected);
EBIT: € 2.7 M (€ -195.1 M in 1H'19 vs. € -21.5 M expected);
Net Profit: € -45.1 M (€ -274.3 M in 1H'19 vs. € -94.4 M expected);
1H'20 vs. 1H'19 Results
Sales: € 3.515 Bn (+2.1% vs. +2.1% expected);
EBIT: € -52.1 M (€ -315.0 M in 1H'19 vs. € -76.3 M expected);
Net Profit: € -187.7 M (€ -418.7 M in 1H'19 vs. € -237.0 M expected);

Better 2Q’20 Results on the operating level thanks to the significant store rationalisation process, the improvement of the commercial proposal and the cost-cutting measures initiated in the 2H’19, still reflected in EBITDA margin (6.4% in 2Q’20 vs. 3.6% in 1Q’20). By markets, the performance of Spain stands out (around 66% sales), which saw the highest rise in both sales (+20% LfL in 2Q’20) and EBITDA margin that reached 4.2% (vs. 0.2% in 1Q’20). Although the progress made is evident in all the markets, in Brazil and Argentina the performance is still tarnished by the negative FX.
Debt came in at € 1.253 Bn (€ 1.833 including leases), meaning a -68 M reduction vs. YE’19, explained by the lower investments and the improvement of working capital. Fort the time being, the company has not given any new details on the bond refinancing process due 2021 (around € 300 M).
Lastly, DIA’s indications suggest that the LfL trend continued in June and July with positive growth rates of +10% and +8%, respectively.
In summary, we believe that the 2Q performance was positive, which was expected, in any event, as the company’s margin for improvement since 2019 was still evident (favourable comparison basis). In any case, this should not come as a surprise and it would be in line with the roadmap of its Transformation Plan, underscoring that 2020 is a transition year, as it only quantifies targets in 2021/23 (adjusted EBITDA margin’23 around 5.5% vs. 4.8% BS(e)). Thus, beyond today’s positive initial impact, we maintain our SELL recommendation. Target Price: € 0.10/sh (-21.95% potential)