Good morning, and welcome to the analyst conference call on the 2nd quarter and half year twenty twenty one results of Aroteau Hesse. Please note that this call is being web cast and recorded. Please note that in today's call, forward looking statements may be made. All statements, other than statements of historical and may be forward looking statements. Such statements may involve known and unknown risks and uncertainties that could cause actual results, moments or events to differ materially from those included in the statement.
Such risks and uncertainties are discussed in the interim report, second in quarter and half year twenty twenty one and also in Ahold Delhaize public filings and other disclosures. Ahold Delhaize disclosures are available on atalhaize.com. Forward looking statements reflect the current views of Ahold Delhaize Management and assumptions based on information currently available to Ahold Delhaize Management. Forward looking statements speak only as of the date they are made, and Ahold Delhaize does not assume any obligation to update such statement, as required by law. The introduction will be followed by a q and a session.
Any views expressed by those and questions are not necessary the views of Ahold Delhaize. At this time, I would like to hand over the call to JP Omera, Senior Vice President, Head of Investor Relations. Please go ahead.
Thank you, operator, and good morning, everyone. As operator said, I'm JP O'Mara, the new incoming and I'm delighted to welcome you all to our Q2 2021 results conference call. On today's call are Frans Muller, our CEO I'm Natalie Neis, our CFO. Alvin Concepcion, the outgoing Head of Investor Relations is also joining us today. After a brief presentation, we will open the call for questions.
In case you haven't seen it, the earnings release and the accompanying presentation slides can be accessed through the Investors section of our website, aholddelhaize.com. To ensure everyone has the opportunity to get their webcast. Before I turn over Franz, I would like to announce that we are planning to host our Investor Day on November 15, 2021. Please save the date for now with more details to follow in due course. Now I'd like to hand it over to Fran.
Thank you very much, JP, and welcome aboard. Good morning, everyone. We are pleased with our 2nd quarter performance in which associates in all of our brands continued to work tirelessly in a rapidly shifting environment. We would also like to express our support for everyone impacted by the recent floodings in the Netherlands and Belgium as well as the fires in Greece and the tornadoes in the Czech Republic. We are committed to serving these communities and our brands associates during these difficult times.
In this regard, we remain on track to deliver on our pledge and consistent emphasis on safety while at the same time providing great customer service and community support. We are aware of the recent increases in infection rates in many of our markets, and we'll continue to provide assistance In all our communities, including COVID-nineteen vaccination efforts in the U. S. Now let me highlight our key financial results. As a reminder, the Q2 2020 was a particularly difficult quarter to comp against as it represented the height of COVID-nineteen stock up activity, which drove 20.6 webcast.
In that light, I'm very proud of our 2nd quarter performance in which U. S. Comp sales, excluding gas, We're only down 1.5% versus last year's very robust sales levels. And our European comp sales, Excluding gas, grew even 2.4% year over year. On a 2 years stack comp sales basis, U.
S. And Europe grew 19.1 percent and 12.6%, respectively, both representing an acceleration versus 2020. This strong result comes against a backdrop in which several communities across our markets reopened during the Q2, suggesting that new behaviors picked up by consumers during the COVID pandemic continue to be quite sticky web. As demand for food at home remains very resilient. At the same time, our results also underscore that our operations are exiting the COVID pandemic in a stronger position led by our omni channel platform, which continued to drive strong market shares during the quarter.
As such, our online business posted strong double digit growth in the Q2 and our underlying operating margins were very strong in the context of historical levels prior to COVID 2019. This has prompted us to once again raise our 2021 EPS guidance, Reflecting the strength of our first half year results. And we also increased our group underlying operating margin outlook to approximately 4.3%, webcast, up from our original guidance of at least 4%. Natalie, of course, will go into more detail on the financial performance in the Q2 as well as our outlook for 2021. So let me move to Slide 5, where we show why we continue to have confidence in The strength of our omni channel proposition, which is being enhanced by the significant reinvestments we are making back into the business.
On this slide, we highlight some of the key initiatives we are driving to increase our share of the customer wallet and improve our online capabilities. In support of our online fulfillment capacities, we are opening 2 new home delivery centers in New York, which will go live in 2022. We are also scheduling to open our first home delivery fulfillment center in Serbia In early 2022 as well. And in the Q2, we expanded the acceptance of SNAP EBT benefits webcast. Our home delivery service, compact, Albert Heijn compact added 20 new by an AI enabled end to end forecasting and replenishment system being finalized later this year.
Slide 6 highlights some of the key achievements in the U. S. We remain on track for 70% online sales growth in 2021, bolstered by the expansion of our Click and Collect capacity as well, of course, as our with our during the Q2 and remain on pace to end 2021 with approximately 1400 Click and Collect locations, quarter, bringing the total number of stores we modeled since inception of the program to nearly 100, and we continue to see solid Sales uplifts from our remodel stores. And finally, from a brand perspective, I'd like to call out Food Lion, which has achieved its 35th consecutive quarter of positive comparable sales growth. And in addition, the 71 stores that has been integrated year to date performed well, and we gained market share in both the Netherlands and Belgium in the quarter.
This was driven by both strong campaigns during the European webcast. And continued strong performance of health and sustainability activities. We were encouraged by the 24.2% growth In netconsumeonline sales at bol.com during the Q2, which came on top of the 65.4% growth in the year ago period. And the number of sellers on the platform also continues to grow and now stands at 47,000. We are pleased with the Dutch ACM's approval of Abert Heinz pending acquisition of 38 Dane stores, which remains on track webcast.
And in the Q2, Albert Heijn upgraded another 18 stores to its fresh and technology focused format, and they are performing right in line with expectations. We remain on track to remodel approximately 60 stores by the year end. And in Belgium, Albert Heijn continued to expand its home delivery service by doubling its coverage versus the Q1 to 800,000 households. The Bel Air's Super Plus loyalty plan, which gives rewards and discounts to consumers of healthy and sustainable products continues to gain traction, providing a nice sales uplift. And the program ended in 2nd quarter with approximately 1,900,000 members, up from 1,700,000 in the 1st quarter.
We were also very much encouraged by the rebound seen in the performance at our Central and Southeastern European brands. I move in the meantime to Slide number 8. We continue to make progress in elevating our health and sustainability strategy, And I'll discuss a few of these items. We are proud to be one of the leading signers of the EU Code of Conduct for Responsible Food Business and Marketing practices as part of the European Green Deal, which is committed to shifting to a sustainable food system. And as part of the pact, we have made 10 commitments in the area of healthier choices, product transparency, waste reduction and climate impact.
Following successful implementation in other European markets, Mega Himach in Romania became the 1st food retailer to introduce the Nutriscore nutritional navigation system across its own brand products. And in the U. S, we are pleased with our result that 52.4 percent of our Q2 sales are healthy, earning the guiding stars 1, 2 or free rating. This is in line with our company wide ambition to raise sales of healthy own products to 51% by the end of In 2020, we already reached 49.8%. And in the U.
S, the Giant company rolled out
impacted by high sales due to demand from COVID-nineteen. As a result, we saw the net sales grow 3% 5.8% in Q2 at constant exchange rates aided by the strong performance in the U. S, including the FreshDirect acquisitions as well as at gold.com. Group underlying operating income declined 12.2% at constant rates to €832,000,000 with underlying operating margin down 80 basis points to 4.5% at constant rates. The Q2 'twenty one margin was strong in the context of historical levels prior to COVID-nineteen.
Recall that margins in Q2 2020 hit record closed, driven by the significant sales leverage and mix benefits related to the COVID-nineteen stock up activity. Underlying income from continuing operations was €551,000,000 down 15.5 percent in recorded. And in Q2, we repurchased 7,500,000 shares for 176,000,000 recorded. Diluted underlying EPS was €0.53 down 12.1 percent at constant rates compared to last year's record Q2 results. To put this into perspective, remember that the 2021 diluted underlying EPS grew approximately 55 webcasted relative to the 2019 at current rates, which is prior to the COVID-nineteen impact.
Slide 11 and shows our results on an IFRS reported basis for Q2. And when I look at Slide 12, we really are able to web. The ability to sustain continued high levels of consumer demand even as we're lapping the COVID-nineteen impacts of last year. You heard Frans mention that many of the habits formed by consumers during the COVID-nineteen pandemic in 2020 are proving sticky, Aided by our initiatives to improve our omnichannel offerings for consumers. You can see this in our results, particularly on this slide, web.
Our comp sales trend for the 2 year staff basis were strong and clearly better than the pre COVID The 15.8 percent 2 year comp sales stack we achieved in 2020 as well as the 15.5% 2 year comp sales stack that we achieved in Q1. Webcast. In Europe, the 2 year comp sales stack was 12.6% in Q2 versus 12.3% in 2020 and 18.1 after being challenged much of the past year. All in all, we have good momentum across our business, demonstrating that our brands are continuing to execute very well in this food environment and that consumer behavior towards eating at home is proving to be sticky. On It's the same story.
Our sales trends are strong and remain elevated versus pre COVID levels. I'll talk about what exactly those calendar and weather effects were in webcast. From a regional perspective, we posted 15.9% adjusted 2 year comp sales back in the U. S. Positive strike effect.
This development is an acceleration versus the 14.6% adjusted figure in Q1. In Europe, the 2 year comp sales stack was 13.4% in Q2 versus 17.2% in Q1 after adjusting for calendar webcast. So anyway you look at it, our 2 year comp sales stack were strong in both regions. Let me now discuss our 2nd quarter performance by segment on Chart 14. Net sales in the U.
S. Grew by 2.7 At constant rates to EUR 11,100,000,000 U. S. Comparable sales ex gas were down 1.5% against the tough comp of the year ago period web. COVID-nineteen related stock up activity drove 20.6% comparable sales growth excluding gas.
Our U. S. Online sales continue to grow at solid double digit rates even as we lap triple digit growth in the year ago period when COVID drove a step change in the way our webcast. U. S.
Online sales were up 61% in constant currency, driven by increased click and collect pandemic is having a positive and sustainable effect on our business, and we stand ready to continue our strong execution in this environment and continue to increase our investments in our digital and omnichannel capabilities. Our underlying operating margin in the U. S. Was 5%, down 1.1 percentage points from the prior year at constant exchange rates as margins lapped the unusually high levels of the prior year. In Europe, net consumer sales in the 2nd quarter grew 3.6 percent to €7,500,000,000 webcast and furthergrowth@boule.com.
It should also be noted that Q2 comp sales were negatively impacted by approximately 70 basis 64% growth in the same period last year. Atbol.com, our online retail platform in the Benelux, which Included within the European segment results, net consumer sales grew 24.2% in the quarter. Bol. Com's 3rd party sales continued to grow and were up 26% with nearly 47,000 merchant partners active on the webcast. Underlying operating margin in Europe was 4.2%, down 0.3 percentage points from the prior year cash flow in the Q2, which you can see on Chart 15.
Free cash flow in Q2 2021 was EUR 428,000,000 which compares to €533,000,000 last year. This development was largely impacted by lower operating cash webcasted. Last up from my side today is our outlook for 2021 on Slide 16. We've mentioned more than once webcast. The COVID-nineteen continues to create significant uncertainty for the remainder of 2021, but our strong Q2 results provide us with confidence to again raised our full year 2021 EPS and operating margin outlook.
As a reminder, COVID-nineteen and to a lesser extent And while it doesn't affect our comp store sales, our Q1 acquisitions of FreshDirect as well as the stores from Southeastern Grocers along with the Dean's Supermarket stores later this year will provide us with incremental sales. We are raising our underlying operating margin outlook to Approximately 4.3% versus previously 4%, reflecting the strong margin performance over the first half of the year. The margin continues to embed balancing the effects of cost savings of over €750,000,000 in our Save for the Customer program webcast. With cost pressures related to COVID-nineteen as well as the earnings dilution from increased online sales penetration. As such, We're raising our full year 2021 underlying EPS outlook as well, which is now expected to grow by Moving over to free cash flow, where we expect approximately €1,600,000,000 inclusive of net Capital expenditure of around €2,200,000,000 Free cash flow will be impacted by the unwind of working Capital such as inventories and accounts payable due to the lapping of high levels of consumer stock up activities related to COVID 19 in the prior year.
Today, we are also announcing our 2021 interim dividend of €0.43 Compared to the EUR 0.50 in the prior year period, which is in line with our interim dividend policy of 40% webcasted to grow our full year 2021 dividend payment with the 40% to 50% payout ratio. With that, I'll hand it back with a fan.
And thank you very much, Nathalie. So let me wrap up. We are pleased with our 2nd quarter results, which featured accelerating 2 years comp sales tag plans for 2020 and continued growth in our online business. These results are not only indicative of strong food at home demand, but also reflect the power of our accelerating our omnichannel platform capabilities. It's also important to note that our top line performance is translating into solid profitability.
Our 2nd quarter underlying operating margin of 4.5% compares favorably to our pre COVID margin profile, and our first half results give us confidence to raise our full year 2021 underlying EPS and UOP guidance. We have also announced an interim 2021 dividend €0.43 per share and remain on track to growing our full year 2021 We have recently received approval from the Dutch regulation body for our pending acquisition of the 38 Dane stores, which We anticipate closing in the Q3. And importantly, we are proud to be one of the leading signers of the EU Code webcast.
Before I pass it on
to the operator for the Q and A, I would like to take this opportunity to thank Elvind Concepcion for strong contributions to our organization over the last 3 years. Elvin will continue to support us and onboard JP in August. And Natalie and myself, we want to wish you, Alvin, and your family all the best for the future. We are now happy to take your webcast. And operator, could you please proceed with making that possible?
Thank you, webcast. To keep this to a minimum. If possible, don't call hands free or use the speaker. In order to allow enough airtime for all participants, webcast. And the first Question is coming from Robert Jan Vos, ABN AMRO.
Please go ahead.
Good morning, everyone. My two questions. Yes, you increased your guidance for EBIT profitability and EPS, but you did not Change your guidance for free cash flow. So my first question would be, can you elaborate on why you decided to keep your free cash flow guidance unchanged? And my second question, what are your thoughts on cost inflation that we see in many areas now?
And maybe more specifically, any thoughts on wage cost inflation in the U. S. And Europe?
Robert, this is Natalie. I'll take your question on free cash flow and Frans will come on inflation. Essentially, when we look at the Free cash flow for the year. What I would say on that one is we are anticipating now the remodeling costs of Dean, which we talked about, there's 38 stores coming online. We expect that in Q3, and we're going to have them all remodeled and up to the Albert Heijn standards by the end of the year, and that's something that is going to have a cost to us of almost $100,000,000 And in addition to that, we web.
We continue to have the unwind of our working capital. So that's something that it's been almost €1,000,000,000 that we saw as an impact, and We feel expect a good piece of that to unwind between now and the end of the year. So I think those are the big call outs. I'd also add, web. You've seen us continue to mention that we're going to increase our spend on omni channel, e comm and Digitech, And that's definitely something that will play into our CapEx as well.
So you may see that CapEx number go a little higher than what we have at the
EUR 2,200,000,000. And Roger Jan on inflation, wage inflation, and I will take on commodity inflation, but most likely that question is also coming later. On wage inflation, if I started the U. S, yes, there is a tight labor market, also especially also in transportation, But also in the total supply chain. We think that there will be a relief in that labor market after September.
But at the moment, we try to deal with this in a proper way, both with manufacturing industries and with retail. At this moment, we manage this quite precisely. We were also able, being an attractive employer to attract more than 8,000 people at the Food Lion brand. So we are able to attract people for our DCs, for our stores because of this reason and inflation and it's included in the guidance for the full year. On the European side, also there, market It's getting tighter also on specific talent on technology and digital as you can imagine.
But so far we imagine this and we manage this and We have to be make sure that we have an effective supplier, both for careers, both for primary and secondary benefits. And that's exactly what we do. And I think we are well positioned in the labor market with prospective people have, but also without auto packages we offer. On the commodities, because there's quite some questions on commodity inflation. In both Europe and in the U.
S, We see roughly 1% inflation in our prices, in our cost prices over the second quarter. The USDA authorities see 2.3% for the full year on inflation. That means that we will have a slightly elevated Inflation level in the second half of this year, we think this is very manageable. And we have, as we said in the last quarter, Good economists working on our should cost models to make sure what is legitimate to accept as potential price increases, But also those price increases for the second half year as we envisage them at the moment are included in the guidance. In Europe also roughly 1% Inflation we see on commodity prices and we all see the same on commodities and energy and these kind of things.
There are some things which are timely effects and there are some things which we have to calculate carefully, but we also think that inflation in Europe is manageable. And we all know that a moderate inflation is also healthy for retail in the end. So that's it on inflation, Robert Jan. Very helpful. Thank
you. And the next question is from William Woods, Bernstein. Please go ahead.
Hi, there. Two questions for me. Could we just have a bit of an update on ships to me and kind
of what's happening with that In the next kind of half. And then secondly,
I suppose your outlook on further into lemonade particularly in the U. S. Thank you.
On ship to me, William, that's one where we are that's our endless aisle opportunity in the U. S. Where we're going to web. Bring general merchandise products that are in related categories along with our Prism opportunity for our offering for different brands in the U. S.
That is very much on track. We expect that, that will go live before the end of the year, and it's a nice opportunity, as you remember, to give us Some incremental margin because it's a project where we have basically, we create the platform and we have a guaranteed margin on the products that go through.
On the outlook on M and A in the U. S, especially on U. S, you mentioned. I think we commented on this in the Q1. We saw due to COVID and strong free cash flows for all kind of retailers A pause on the consolidation speed.
I think that consolidation will pick up again in the second half of this year. Web. When we talk to financial investors, we see also an increased activity around the M and A front, IPO front, M and A front, etcetera. So expect more activity. As you know, we have a strong balance sheet and we have also a strong visibility On potential strengthening our network, we mentioned in the past that same store sales is the most profitable where we focus on that growth.
The second thing is infill markets and dancing up the markets where we are already present because it's easy to run those on the existing brands and supply chain. So that's also very accretive from the first moment. Nice example is here the Southeastern Grocer, 70 stores in the Carolinas, which as I indicated before are doing web. Very well and according to our expectations or the Dane acquisition, we also made happen with 38Source in the Dutch market. And the other thing is adjacencies and a nice example there is our FreshDirect acquisition where we have now in a strong position in Manhattan where we were not that strong before.
So for our New York strategy with Stop and Shop and Fresh Directed is also a very healthy addition. So we are focused on this good visibility. We have a strong financial base and we have our eyes wide open to see what's possible there going forward. That's perfect. Thank you.
And the next question is from Mr. R. Joyce, Goldman Sachs. Please go ahead.
Hi. Thanks very much for taking my questions. So the first one is just on the sort of EPS guide. As I read it, it's sort of guiding to broadly flat EPS in the second half versus 2019. Just wondering if, A, that's the correct read and, B, if you could maybe talk about The current trends or the assumptions underpinning that?
And then second one, I had a few investors ask about the potential for an investor event In the sort of Q4 of this year. Is that something you guys are looking at? And if so, would you be able to help us maybe guide us on what you'd be looking to talk about? Thanks very much.
Okay. Let me take that one in terms of EPS guidance first. You're right that it is web. We said in the presentation multiple times that there's a lot of uncertainty out there, That's definitely something where we're going to monitor what happens with the environment. But if we look at kind of where we see things and more normalized Promotional environment and more normalized shrink than where we were in the first half, which are obviously still at quite elevated levels.
That's something that sorry, quite depressed levels. So that's definitely something that we see as playing an impact there. But it's When we look at this environment, we believe very strongly that our margin outlook is strong. We're continuing to see good flow through on sales. So I think that's one where we're keeping our eyes open a bit on if there could be other opportunity there.
With respect to the investor event In the Q4 of the year, this has been something I think we've been waiting on bated breath to do. But given COVID, it was really what's the right time in terms When would the investor community be most interested in hearing some of the new activities we have planned? And there'll be different topics, but I think 2 of the ones that I can call out already today. We'll be talking certainly more about bol.com and our activities there and how we work with that to integrate it even more I'm in a food, non food platform environment. And secondly, we'll be also making some very nice comments, I think, in terms of Sustainability and our activities there and our ambition.
So expect to hear more. Those are I'll call them 2 teaser topics for you. But it's definitely something where we have, I think, some news to tell in terms of where we are in a strengthened position post COVID.
Thanks very much. Sorry, actually, just within the first question, I was just sort of asking about the yield. Thank you for those explanations. Just the current trading on So maybe on a 2 year stack, we think about U. S.
And Europe, are we seeing any big differences?
Are you talking about on a sales level now?
On a sales level, yes.
Okay. Well, you know we don't give formal guidance on sales, but I can say that we certainly expect in the second half to still see our sales at elevated levels versus pre COVID.
Web. What we can say, Natalie, that we had a strong start of the Q3, especially in the U. S. And I think we also follow the news in the U. S.
With growing infection levels, unfortunately. And that there's also an impact on the stickiness of our in home consumption and customer behaviors, Also appreciating our very strong omni channel proposition, not only in the U. S, but also in Europe. So I think we are well positioned And that's why we saw a good start of the Q3.
And the next question is from Nick Coulter, Citi. Please go ahead.
Hi, good morning. Thank you for taking my questions. Welcome JP, and all the best to Alwyn. Firstly, please could you talk through the volume market share evolution in your U. S.
I guess you may have the P6 data by now as well as P4 and P5. And I'm just curious Really about the context of your U. S. Like to like performance. It looks to be well ahead some of your U.
S. Peers. And secondly, on the Europe segment, please could you talk a little about the margin evolution year over year? I'm guessing the light fixture wasn't Same at a banner level, but very simplistically for the segment, like for likes went up and margins went down. Thank you.
Shall I take the first one and you the second one, that Lisa? That's fine. But would you
actually repeat the second one, Nick? I'm sorry. We heard something about Europe and differentiated views across the markets, but
I'm sorry,
apologies. I'll turn the volume up on my phone. On Europe, around the margin evolution year over year, you have positive like for likes for the segments, but I'm guessing that Okay. With Albert Heijn or some of the constituent parts, but very simplistically like flights went up and margins went down. So it's just a question In terms of if you could give some visibility on the margin bridge year over year for Europe, please.
No problem. But why don't you start with the market share?
Yes. So I understood the first question, Nick, as some indication on volume development in the U. S.
Yes. You have historically given indications of whether you're gaining volume market share by banner. You clearly are In the food line, but it'd be interesting to know what you're doing in your other banners. And I guess my point here is that You're clearly outperforming, but I'm trying to understand why you're outperforming, I guess, in the U. S.
Yes.
To be very precise, we know that those Nielsen numbers for the Q2 are also still not available for us. They come already quite late. But we have some proxies with IRI data. And what we see is that we have roughly flat Market share with Stop and Shop, but the other brands all gained market share, both in sales and in volume. We have also seen our rather moderate inflation levels in the Northeast.
If you look at the CPIs in the Northeast, we gave you a number of Roughly 1% inflation. So that also means that we will have gained in a lot of markets and especially, of course, in Food Lion also volume as well. So we are very positive about our trends, and we see no big change to the previous quarter Apart from Stop and Shop, we gained share in all our brands in the U. S. And we gained overall on the East Coast as a whole, as in AD USA.
So we're very pleased with that.
And then just to follow-up there, is the East Coast Market, grocery market seeing similar trends to the rest of the U. S? Or is it a better geography
from a sales perspective? It's a geography with historically lower inflation levels, with lower CPI numbers. It's a geography which is very different from North to South, as you know. We see in the Carolinas population growth and GDP growth for investments for foreign investors and this kind of things. So there's a different geography than the Northeast where you don't see that much population growth.
But I think with our omnichannel strategy, where we added a lot of capacity well before COVID and where we're enjoying and we see for the U. S. In total for this year, 17%, including FreshDirect, of course, 70% growth in our online business. I think a lot of people Appreciate our multi channel strategy, our click and collect going to 1400 locations by the end of this year, our same day, our next day. And for For example, if you look at the shift, what we've made, the strategic shift in our online proposition, which people appreciate, is you will remember in 3 years ago, Peapod was 95% next day.
We now have already 60% same day click and collect in our network. So I think we were able to anticipate very nicely to customer behaviors is increasing loyalty under this brand One brand, omnichannel brand philosophy. So I think we gained attractiveness. The other thing is that historically, we have Very strong fresh and private label levels in the U. S.
Where we can differentiate a lot. Consumers in the U. S. Are eating healthier, web. Cooking more at home, have more in home consumption that will be around because also offices will still be closed.
So working from home will stick as well. So all these kind of elements, I think, pay into our positioning and we will benefit from that. So I'm quite optimistic also in the future about our share and market share developments. I
was just going to say on your second Question, which was just on the EU margin evolution. I think there really did you're right, it's different a little different by every brand, but actually the Trends were pretty similar that what we just saw in the second quarter was a bit less sales leverage than what we've had, in previous quarters. And we did have a disproportionate amount of the COVID costs were in Europe this quarter.
But sales were up. So I guess that's a cut to my question. I don't quite understand the sales Leverage point unless it's due to sales leverage,
it would balance with different levels
of profitability, I guess, might be the explanation.
That piece is correct, Nick, that we definitely we talked about recovery of our East European markets, for example, where profitability is, In general lower than our Benelux business, but one of the other things is it's a different quality it's a different level of sales. If you look at last year, the Incremental sales that were coming into the business were very quick COVID only sales where you didn't you had very limit. We couldn't keep up with the cost at that point in the year. Whereas this year, what you're seeing is the natural development, if we open new stores, for example, that kind of thing, that stuff comes at a different sales leverage.
Okay. Got it. Thank you. That's very helpful. And
what is also positive thing, Nick, and you will hear more from us in the second half of this year, We are going to implement more and more tooling and digital and tech tooling from the Benelux also to the Central Eastern European markets. So learnings from the Benelux, if it's home shop centers, if it's digital, if it's loyalty, if it's pricing and promotion tools are all will be rolled out To the other markets in Europe as well. I think that will give us an synergetic effect there. And the other thing is, it's quite competitive also, of course, in Europe, but we are very happy also with the sales development and the market Development of the Albert Heijn brand, where we had in all the markets in the second quarter market share gains. And in June was even 90 basis points Over last year market share gains.
So apparently, the team there is doing a great job, and we do quite some things in a good manner.
And the next question is coming from Mr. Andrew Gryn, Exane BNP Paribas. Please go ahead.
Hi there. Good morning all. Two questions, if I can. So firstly, on the FreshDirect, just wondering if any kind of early learning on that business, particularly with the fabric installation that I think they have. 2nd question, as you also went online, But obviously, you're in the process of adding a lot of capacity with the Click and Collect locations.
I think by year end, about 70% of stores in the U. S. So plans further forward would be interesting. And then kind of connected to that, but just what is the competition doing? I suppose there's a view The independents are struggling to keep up, is that what's more now on the ground in the U.
S? Thank you very much.
Yes. Let me start with the fresh direct earnings. The company is with us not even 6 months as we know, but We learned a lot there in the meantime. So first of all, it's a very complementary brand in the total setup, Strong foothold on Manhattan and the Tri State New York. What we have seen is that a lot of FreshDirect customers Also, we'd like to have next to their FreshDirect commitments also a strong supermarkets on their side.
And that gives us an opportunity with Stop and Shop and with FreshDirect to combine and to capture that omnichannel proposition for customers in the New York area. And Especially in the tri state space, there is quite some room for us to win. The second thing is that We see, as we have seen before in our due diligence, a very high loyalty of existing customers and a very strong proposition of Fresh direct overall on the fresh convenience and healthy part of the assortment. We will and we have now embarked on using The private labels of our Hannaford business into FreshDirect, which gives a stronger And the store proposition for FreshDirect, which was an opportunity as we saw before. And we also brought FreshDirect closer to our overall group governance from an IT, from a digital, from an administration, finance, HR, compliance and governance perspective.
And we see quite a nice opportunity with 2 strong brands in the New York area to grow faster. We have an like we have takeoff and like we have Swiss Lock as micro fulfillment center pilots. We also have indeed with fabric in Washington, and partly which we are ramping up. It's too early for the learnings there, But we will run that for the Washington, D. C.
Market and pick up those learnings and see how we can integrate this in our total micro fulfillment strategy. And now we're having 3 suppliers. I think we have a very good view there. And we're all learning here, right? I mean, we're not the only retailer who's learning What is the best technology, but we are very much convinced that micro fulfillment centers close to customers, agile, low investment levels, flexibility web And parked and housed in existing assets is the right thing to go forward.
And I mentioned already earlier that we will, by the end of this year, web. And opened that new facility, the Swiss lock facility in Philadelphia. So positive about our directions, Learning every day. And I think also with takeoff, we get close to our productivity levels we strive for And the same hopefully also for Swiss Lock and Fabric.
And when it comes to Click and Collect, you'd asked on that. You're right that we're going to be hitting 1400 stores by the end of the year in terms of having those click and collect locations. We've got over 2,000. So We're not quite at a 70%, 75%, but we're at a very good level. You'll continue to see us expand that.
But Let me also mention that with the e com coverage we have, including home delivery, we already reached about 95% of our customers. So we're going to need to be thoughtful as we go forward to say, hey, where does it make sense? Where is it economical? There's a piece about capacity, but I also think it's very important that we focus on Productivity of the sites that we have available. And you're right, we've had about that 70% increase in capacity, over the last year, year and a half.
I think as we go forward, what you're going to see is a real need on our side to focus on everything we can do with that Click and collect options, but also how do we improve our whole CVP? How do we make sure that the fee structure is optimal, that we've really got things available online and in store and that real connecting the omnichannel piece of our business. But when we look at click and collect capacity and the business, we're very pleased that it's gone from being a pretty nascent business a year and a half ago to being about 50% of our e com sales in the U. S. Today.
So it's something that I think also shows very much the agility of our business and how we're able to respond to those trends in the marketplace. We see consumers wanting a new avenue, being able to bring it very quickly to them.
And our Click and Collect proposition offers the full store assortments, right? And we have this proprietary Prism software, we talked about it last quarter, Which we developed ourselves, so we have full ownership of customers and customer data, which is very important to us. But in every click and collect location, you have the full assortment in your hands. And I think that is a big advantage compared to quite some competitors.
Okay. All very clear. Thanks very much.
And the next question is coming from Mr. Sreedhar Mahamkali, UBS. Please go ahead.
Good morning. Thanks for taking my questions. A couple of
quick ones then for me. On the sale For our customers and COVID costs, please. On the sale for our customers, plan €750,000,000 Can you give us a sense of what was delivered against that so far this year and how it compares to last year? And also related, my guess is the COVID Costs in Q2, if you can shed some light on that. And I think you mentioned €150,000,000 if I'm right in Q1.
And the second one is on just a bit of a clarification on free cash flow, please. Is the CapEx now 2,300,000,000 As opposed to 2.2, given your comment earlier about €100,000,000 costs on Deane. And then again, on working capital, Is there any thoughts you can share with us in terms of how it might look by the end of the year relative to what having 900,000,000 Contribution last year as we wrap up 2021, how might it look if there is any sort of direction there? That would be super helpful. Thank you.
On the Save For Our customer number, we only update that on an annual basis. So sorry, not too much Too specifics on that, but I can tell you we're tracking very much in line. I'm very confident that we're going to be able to hit that number for the full year. When you look at the COVID costs in the Q2, you heard $84,000,000 So divide $750,000,000 by 4, that's probably conservative expectation in terms of how that number falls and you see that that exceeds the COVID costs in the period. When we look at the free cash flow, I haven't given any specific numbers in terms of Our CapEx, what I've said is, do expect something on the Daein acquisition and it's around $100,000,000 So your assumption is not a bad one.
But I did also mention, Look at that CapEx number. We have we will evaluate that as we go through the year. One of the things that I think we really developed as a skill last year was saying As opportunities present themselves, especially on the omnichannel and digital front, that we've become very quick at being able to invest there when we see opportunities. So that's something where we have done so far this year. You see at the half year, our CapEx number is actually for the Q2 up versus where it was a year ago.
And I think that's something you may see us looking at as we go through the rest of the year. In terms of working capital, That's something, again, we don't give a specific quantification, but you know there's a working capital unwind that's Going to be quite sizable and it will be in the 4th quarter something that it's 100 of 1,000,000 in terms of the impact.
Thank you. Maybe just a very, very short follow-up to what Nick was trying to understand earlier on the performance of different brands. Just a connected question, are you able to give us a sense of where online penetration is for Food Lion, Giant and Stop and Shop, please? Is it Different? Is it broadly the same as the U.
S. Overall?
You're talking just about the U. S. Market?
Yes. Yes.
So they are they definitely do vary. We haven't Close the penetration levels by brand, but what I can tell you is our highest penetration is at Stop and Shop, Our lowest penetration is at Food Lion. And you know the overall number, we've kind of passed the 6% number there. Actually, I'm sorry, that's even we're even higher than that, right? I think it's actually if you look at that number 7% on the 7% penetration
For the total U. S. And what you say is correct, Nathalie, that those plants which we grew up historically with the Peapod facilities and Peapod delivery, Those are the AD, the former Ahold USA brands. They have historically in higher penetration. If you see that Both Hannaford and Food Lion are catching up.
But this is correct. Stop and Shop, the highest penetration degree and Food Lion, the lowest. We are catching up very fast, sweetheart. And you see also that the customer behaviors are, of course, different In more urban and less urban areas. So I think we're moving very fast and also with Food Lion, although A relatively lower penetration, I think we run there at 4% at the moment, is growing very fast.
It's the fastest growing brand there on the online proposition.
Okay. Thank you very much.
And the next question is from Andrew Porges, HSBC. Please go ahead.
Yes. Hi, team. A couple from me. So just looking at your guidance again, I think you talked before about effectively second half being At pre COVID levels of earnings. And just wanted to clarify why you expect that to be because it sounds from your commentary like there's no sign of any sort of No sign of demand returning to pre COVID levels.
So I'm just wondering what you're seeing there and whether what you expect To drive that very fast normalization as we move through the second half. And then a second question really around U. S. Supply chain. I think you talked a little bit about some tightness there.
I think there's been quite a bit of news flow around sort of issues With supply chains, mainly in the U. S, across Europe as well. Just wondering what you're seeing there and whether you think you're sort of relatively better positioned than the rest of the market when it comes
to that side of things?
On the outlook, shall I take the first one or the second one? The second one was on the supply chain, right? So the situation on the supply chain. We see in Europe a pretty normalized supply chain and shelf availability numbers. You can imagine that the natural disasters of the floods in Holland and Belgium, the Czech Republic and Greece are not helping there.
So we'll see an effect, but that's in the guidance by the way, but we see an effect there that the supply chains are hindered due
to natural
disasters and supplies with the manufacturers are more difficult, Roads are blocked and all these kind of things, but it's a temporary matter. On the U. S. Side, we are in a fortunate position that we have a lot of supply chain self managed. So we own a lot of vehicles and we have a lot of drivers on our aero as well.
So we have a strong control The other positive thing is that as we announced earlier, we are more in a direction of self Distributing for our total supply chain network in the U. S. With the CNS asset acquisitions as we commented before. And that is absolutely strategically in the right direction. And the more we control ourselves, we can more control our destiny and we're less independent on So that's now paying off.
And of course, in the U. S, L and D, logistics and distribution is still stressed, web. Availability of labor, fuel prices and availability of vehicles. But I think we are potentially better positioned there Because we have a lot of drivers and vehicles under our own management.
And when it comes to the outlook, for the year and how it impacts COVID. It's something where we've got the cost savings that are still coming in, but we also have the cost pressures from COVID-nineteen. Remember that when you look at the first half of the year in terms of that comparison to 2019, there was kind of an artificial piece that impacted that number, which is the stop and shop strike that was $100,000,000 impact to our operating margin in web. 2019 and that number, we don't have that advantage as we go into the second half. And I mentioned, I think, earlier one of the questions that we're expecting web.
A more rational promotional environment. And that's something as we see the supply chains normalizing and web. Every the more people eating out of home, that's just something that's going to become, I think, part of the landscape. But It is something we have a lot of things in place. That's why we've increased our guidance.
And I think we just want to be very cautious as we look at the second half of this year In terms of saying, it is very unclear what's going to happen in the U. S. With vaccines and web If there's another wave and how that would potentially impact things going forward.
Okay. Thanks a lot. That's really helpful.
And the next question is from Mr. Clement Genelor, Brian Garnier. Please go ahead.
Okay, great. Sorry. My first question is on quick What's your view on the Wislaus of quick commerce players such as Gorillas, Margeti, I mean, Zappi, web. In the Netherlands and also Magopas in the U. S, are you willing to, let's say, why not sign partnerships with Platforms just to make sure your convenience store in our business.
And my other The question is just to come back on the other floods in my Belgium and Netherlands in Ollie. So we have to expect a kind of impact on this operation and on costs. What about sales? Webbed. Do you have closed the stores in Ma, Belgium and in France right now?
Thanks.
Okay. Thank you. The line was not great, but I think we understood your questions clearly. On the last to start with, We had heavy floods in both the Netherlands and in Belgium. In the Netherlands, we had no damage to assets and no stores closed.
So it's a pretty normal normalized situation at the moment, so no effect there. In Belgium, we had stores Underwater and a number of stores closed. The teams are doing a tremendous good job by bringing those stores back in operation. We will have an effect on sales and therefore UOP, but it's all included in our guidance. So we don't expect a deviation from our guidance for that.
And the stores are getting 1 by 1 again back to the network, same for road quality and the total Supply chain. Web the supply chain has some damage there in total for the total network, not only for us, but also for other retailers in that part of Belgium as well. It's more a national topic than it is in the less specific topic. So included in the guidance and The teams are doing a great job to support also the communities and the people affected in that region. On flash type of business, the instant, the Gorillas, you mentioned.
I think we are a long time in business and we see within our omnichannel strategy a lot an enormous dynamic journey with next day, same day, hourly delivery, click and collect, Home delivery, pickup from stores and these kind of things and that we see both in Europe and in the U. S. And both with Albert Heijn in the Dutch market, But also with our people business before in the U. S, we I think we were front runner and pioneer. So we always have been very alert towards these kind of customer web.
And the same for the examples you just mentioned, we have also in the U. S. A couple of examples we saw years before. And we make those judgments and we monitor this properly. We talk to customers to see what they would appreciate.
And at the same time, we also like to make sure that we have an Omnichannel view and total profitability view, but also that we look economically what is viable and what might not be. So we are monitoring the situation there. We added in the Dutch market Albert Heijn Compact, which is very much focused on single households, smaller baskets and no delivery fees is doing extremely well for us. We grow share there And we have already rolled that out to 26 markets, as I said before. So we're very happy with that thing.
That's an Addition to our services there. So we monitor this very closely and the same also for what you call that instant type of delivery. And yes, I think we are on top of this to see what is the best choice for our customers in the future.
There are no further questions. Please continue.
So ladies and gentlemen, that concludes our call for today. As we said earlier, we'll be giving you some more details on our Investor Day in November later, and we wish you all a pleasant day. Thank you.