Thank you for your patience, ladies and gentlemen. Welcome to Sonae's first half 2020 Results Conference Call. During the introduction, hosted by Mr. João Dolores, Sonae's CFO, all participants will be on a listen-only mode. After the introduction, there will be an opportunity to ask questions. If any participant has difficulty in hearing the conference at any time, please ensure your headset is fully plugged in, or alternatively, dial in from a different device. If you'd like to ask a question during the Q&A portion of today's event, you may do so by pressing star 1 on your telephone keypad. I will now hand the conference over to Mr. João Dolores. Please go ahead, sir.
Thank you. Hi, everyone, and thanks for joining our Q2 Results Conference Call. As usual, together with me today, I have Rui Almeida from Sonae MC, Paulo Simões from Worten, Miguel Moreira from Sonae Fashion, Luís Mota Duarte from Sonae Sierra, and Cristina Novais from Sonae Investment Management, as well as our Investor Relations team, as usual. As you all know, after a very positive start to the year, the COVID-19 pandemic hit us in mid-March, and it was essentially during Q2 that we felt most of the impacts of this situation today. Some of our businesses felt tremendous pressure in their activity, mainly through spikes in demand, changes in consumption patterns, and also disruptions in the supply chain, and had to adapt very quickly. This was the case in food retail, Worten in Portugal, and also NOS.
I'm happy to say that our reaction in all these businesses was very agile and effective, and of course, the results show very positive performances in all of them. Other businesses in the portfolio were practically forced to shut down, as you know, particularly during the lockdown period, and had to find innovative ways to continue to operate and also focus on cash preservation initiatives. This was the case at Sonae Sierra, Sonae Fashion, ISRG, and also some other retail vendors. Despite the challenging context for these businesses, which naturally translated into a decline in results, I would like to highlight the successful implementation of cost-reduction measures and also the rationalization of CapEx, which were critical for the group to maintain a solid liquidity position throughout this period. In all these businesses, we are now seeing an encouraging rebound since reopening, and we remain positive for the months to come.
I am going to do a brief overview of each business, and I'll talk about consolidated results as usual, starting with Sonae RP. Sonae RP had, once again, a very positive quarter with strong sales growth, good momentum in the online operation, and a reinforced leadership position in the Portuguese market, and this despite the very challenging context and a number of disruptions to its regular activity. In Q2, turnover grew 9.2% to EUR 1.2 million, with a like-for-like sales increase of 6.2% and a particularly strong growth in all food retail formats and also in the online business. Once again, our customers valued Continente's wide assortment, availability of products, and the safe and clean shopping environment in our stores, and this resulted in consistent market share gains and higher customer satisfaction.
This was true for both large formats, given their broad offering and higher sense of safety, and also for proximity supermarkets, as consumers looked closer to home for their everyday essentials. Non-food formats had a tougher quarter, as they were forced to temporarily shut down up to mid-May. This was true for Arenal in Spain and also Dr. Well, Baghe, and Go Natural restaurants in Portugal. All in all, in the first semester, Sonae MC's turnover reached EUR 2.4 billion, 11.5% above last year, with a like-for-like growth of 8.3%. Operating profitability stood slightly below last year, 9.3% versus 9.5% last year, mainly impacted by the incremental costs related with the pandemic, particularly in Q2, and also changes in channel and product mix.
The company continued to follow a very disciplined approach to cash flow management, namely by improving cost efficiency in several fronts, by rationalizing capital expenditures without compromising its growth plan, and also by optimizing working capital management. Sonae 's net debt decreased over EUR 100 million year on year, and its leverage ratios remain at acceptable levels. Moving on to Worten, Worten had also a very strong quarter, both in terms of top line and profitability, with, I would say, quite different context in Portugal and Spain. In Portugal, all stores remained open, with the exception of Worten Mobile and the iServices stores located in shopping centers. These started to reopen gradually in May. In Spain, all the stores in mainland were closed during the lockdown, and in the Canary Islands, we had also six stores that closed down at that time.
All the stores in Spain that were forced to close down only started to reopen at the beginning of June. Overall, trading performance was very positive for Worten globally, with 9% like-for-like growth, mostly driven by the Portuguese operation, where Worten continued to extend its clear leadership position, and also by the surge in online sales in both Portugal and Spain, which increased by a factor of four year on year. This performance in e-commerce is good evidence of the work that has been carried out at Worten in recent years to improve its value proposition, and also of the ability the team showed to quickly adapt to the needs of customers in a completely different context.
Regarding profitability, the top line performance, coupled with the closure of 14 loss-making stores in Spain in the last 12 months, drove an alignment in Q2 to improve from EUR 7 million last year to EUR 12 million this year, an improvement in margin from 3% last year to 4.7% this year. Overall, another good and encouraging performance, particularly in Portugal and online. Regarding Sonae Fashion , Sonae Fashion was one of the most impacted businesses by the pandemic, as you can imagine. All its stores were forced to close down during the lockdown period. Despite this restriction, the team at Sonae Fashion quickly implemented a number of initiatives to continue to serve its customers and limit the negative impact from the social distancing measures that were put in place.
The online channels continued to deliver very high growth rates during Q2, obviously not enough to compensate the offline inactivity since mid-March, and sales declined 42% like-for-like year on year. All in all, Sonae Fashion's turnover stood at EUR 53 million in Q2, 32% below last year. Regarding profitability, and given the sales evolution and the extra costs directly related with COVID-19, underlying EBITDA was down by EUR 15 million year on year to negative ground and stood at a negative EUR 12 million in the quarter. Since mid-May, stores have begun to reopen with better-than-expected performances and with already positive like-for-like figures in the last few weeks, despite all the restrictions that are still in place and also the limited footfall that we're seeing in shopping centers.
In sports retail, ISRG was also forced to temporarily close down all its stores during the lockdown period, both in Portugal and in Spain, so a very similar story to the fashion business. In this context, Q1 sales, which run from February to April at ISRG and consolidate into our Q2 account, took a severe hit and EBITDA decreased to negative ground. Therefore, the contribution to Sonae's results was a negative EUR 6 million in Q2. Meanwhile, the reopening process started gradually since mid-May, and the rebound in sales has been quite positive, and we're seeing double-digit growth rates ever since. As for my financial services, Sonae FS was one of the least impacted businesses by the pandemic, but still, we saw a slowdown in activity during the lockdown period, namely concerning new credit card issuance, credit card usage, and new personal loans.
Turnover in Q2 fell EUR 1.6 million year on year to EUR 7.6 million, driving the first six months of the year to a flat performance year on year. Underlying EBITDA also saw a slight decrease year on year to EUR 1.3 million in Q2. In spite of this challenging context, the Universal Card registered an estimated record market share since its creation, fueled by the strong boost of online purchases in sectors like grocery, clothing, and home appliances, which were significantly above historical figures. Moving on to Sonae Sierra. Sierra was among the most affected businesses by the pandemic as well. There were severe restrictions in place to the normal functioning of all shopping centers across the portfolio in both Europe and Brazil, which resulted in significant impacts on Sierra's activity and results.
The company's direct result was very much influenced by expected rent discounts and provisions regarding Q2 and a reduction in service fees, namely in property management and also in development services due to some delays in projects. Regarding rent renegotiations with tenants, and as you probably know, Sonae Sierra has taken a constructive approach and reached an agreement with most tenants for the months of April to June, and this is what is being accrued in the Q2 accounts. As for the company's indirect result, it was highly impacted by downward property revaluations in Q2, both in Europe and in Brazil, and these revaluations were a function of both increases in yields and also operational impacts from the pandemic.
Sonae Sierra ended Q2 with an NAV of EUR 947 million in total, 7% down when compared to the end of Q1, mainly reflecting the decrease in investment property values, asset impairments, and also the devaluation of the Brazilian real. Regarding NOS, as you know, NOS has already published its Q2 results, and these were also impacted by the pandemic and with a stronger impact operationally when compared to Q1. These impacts were particularly relevant in the cinema exhibition business, given the forced shutdown of movie theaters, also in roaming revenues, given the travel restrictions that were put in place, and also in premium sports channel billing, which was only resumed late in the quarter. In any case, the core telco business showed a quite resilient performance, with commercial activity starting to pick up after the lockdown period in mid-May.
In total, revenues fell by 12% in Q2, with EBITDA decreasing only 8%, and net income was less affected due to a positive evolution of most lines below EBITDA, namely the capital gain related with the sale of the wholesale business in the quarter. EBITDA minus CapEx was only down by 2% due to savings in CapEx, and the company's balance sheet remains quite strong and should be further reinforced by the Sell Next Tower deal, which was already approved by the Portuguese Competition Authority in Q3. I would just like to make a quick note regarding the announcement that we made last week regarding NOS and Zon.
As you know, NOS is an important asset in our portfolio, and we have always stated that we were happy with the exposure and level of control that we had in the business, but we also said that we would always strive to find the best possible solution for the company in any given context. The operations that we announced last week aimed to achieve precisely this. We agreed with our partner, Zon, to terminate this JV, and when executed this operation, together with the acquisition of an additional stake in NOS, will result in a shareholding in the company of just above 1/3 of the share capital, a position which will allow us to remain a reference shareholder and continue to help the company execute its strategy.
Finally, regarding Sonae IM, in terms of operational performance, Sonae IM's portfolio showed quite solid behavior, positive notes in particular for the cybersecurity companies, which showed double-digit growth in the semester and contributed to the 4% year-on-year increase in Q2. Underlying EBITDA was positive in Q2 and partially offset the negative results of Q1. The pandemic impacted mainly Sonae IM's M&A and portfolio development activity, with a few planned investments and exits that were postponed in the quarter. In any case, in the first semester, Sonae IM still entered the share capital of one retail tech company, Sales Layer, and made an early stage investment in a company linked to short-lived technology while continuing to make some follow-on investments in its portfolio company.
All in all, Sonae's consolidated turnover reached EUR 1.6 billion in Q2, a 5% increase year on year, mainly influenced by Sonae IM's strong performance and also by the very positive trading at Worten. Underlying EBITDA at the group level stood only slightly below last year on a comparable basis, despite the negative evolutions at Sonae Fashion and Sonae Sierra. Consolidated net result reached a negative EUR 16 million. This was strongly impacted by the lower real estate asset valuations registered in Q2 at Sonae Sierra, which I mentioned before. During this period, Sonae continued to reinforce its capital structure. Net debt at the end of Q2 was down 28% year on year, and we have been able to refinance more than EUR 650 million since the beginning of the year, maintaining a low cost of debt and a maturity profile above four years.
We continue to anticipate no significant financing needs in the short term, and we remain confident that Sonae has the adequate liquidity levels, even if more adverse scenarios materialize in the near future. That is it for me for now. Thank you for listening, and feel free to post questions to all of us. Thank you.
As a reminder, to ask a question, it is star one on your telephone keypad. When preparing to ask a question, please ensure your headset is fully plugged in and unmuted locally. Our first question comes from João Pinto of JB Capital Markets. Your line is now open.
Hi, good morning everyone. Thanks for taking my question. The first one on NOS, given it is a strategic asset, do you feel comfortable with a 33% stake, or would you consider to increase this in the future? Also on NOS, is there any reason why doing the additional stake acquisition through Sonae SGPS instead of through Sonaecom? Moving on to Sierra, regarding the possibility that tenants will only have to pay the variable part of rent, could you update us on this proposal? If they go ahead, do you have any estimate for the potential cash impact? Finally, on Sonae MC, could you give us some color on sales dynamics in the third quarter? Can we expect high single-digit sales by highlighting Continente and positive in adjacent formats? Thank you.
Thank you, João. I'll take the first couple of questions on NOS, and then I will ask Luís and Rui to take the questions on Sierra and MC. The first question on if we feel comfortable with the position that results from the operations that we announced, and also if we would want to increase our exposure. I think the resulting shareholding for Sonae is one that we believe continues to position us as a reference shareholder in NOS, and obviously it gives us more options regarding our exposure to the business in the future. At this stage, we are mostly focused on executing the solution that we announced to the market, and that we believe results in a stable shareholding position for Sonae, and one that will enable us to continue to support the company and its management team in the near future.
Regarding the acquisition of the additional stake at Sonae SGPS and not Sonaecom, this was basically a portfolio and financial decision taken at the Sonae SGPS level, and it was approved by Sonae's board and executed at the holding company level. That is the main reason why we did it at Sonae SGPS and not at Sonaecom's level. Luís, do you want to take the Sierra question now?
Sure. Good afternoon, everyone. I'd like to start by saying that, unfortunately, we are currently in a situation where a newly formed association, which has been recently created, has been repeatedly and consistently spreading false information about the sector, which has reflected the material lack of understanding of the shopping center. They have inclusively misinterpreted information that has been made public by the likes of us and by other operators, which they have used to lead politicians and the public opinion to materially inaccurate conclusions, including the law, which you referred to. In practice, what this means, it means I will need to be a bit more—I will need to be a bit less transparent when it comes to information, because I know that there is a risk that it can be used against us, because it's going to be falsely interpreted and used.
Having said that, in terms of the actual law, I think you were referring to whether the law goes ahead or not. The law is in effect. The law has been published, so it is now the case that tenants only have to pay the variable rent. In order to explain to you the impact this has on us, there are a couple of things I wanted to flag to you. Firstly, in terms of understanding how the shopping center model works, it is mainly based on a minimum fixed rent, which means that, for example, last year, which was a very normal year, it means that the turnover rents, i.e., the variable rents, only represented around 3%-4% of our total rental income. This means that the variable rent is not a measure of sales performance.
There is a significant difference between the normal performance of a tenant and what he would pay under variable rents only. This means that the variable rent is really just upside sharing. That is the way it should be seen, and that is why it is usually quite a limited number in our financials. I would also like to flag that Portugal nowadays represents roughly half of our portfolio, so we have presence in many other countries where we have seen a much more normal behavior from the regulators, and I am including here countries like Romania, Italy, Spain, Germany, Colombia, Greece, Brazil, etc. I would also like to clarify that we have a small shareholding in these assets. On average, in Portugal, we have around between 15%-20% stakes on average.
To give you a sense in terms of actual impact, we're talking about rents overall from our European portfolio on a run rate basis in the order of EUR 60 million, of which around half comes from Portugal. The impact we estimate from purely dropping fixed rents, even before any impact from declining sales, is around 40%. This means that if sales decline, say, 20% from August onwards, tenants will have a 50% discount on average on their rents. There is a very significant disproportion between sales decline and actual rental discount, which is reflected in this law. This law, unfortunately, I mean, the different parties were not consulted when it came to actually drafting this law. Therefore, what is a very complex ecosystem, like the shopping center, where we have many different types of players, very large operators, very small operators, mom-and-pop shops.
We have seasonal businesses in the year. We have seasonal intraday businesses, players with different liquidity positions and different financial positions. We have operators like banks to restaurants, etc., which makes it a very dynamic, a very vibrant, but a very heterogeneous ecosystem. Unfortunately, the law applies to everyone in the same way. Basically, it forces us to look into to apply the variable rent defined in the contract, where it was negotiated as something entirely different and entirely different context. We have to apply it now to all the different players. I can give you some examples of some distortions that this law creates. For example, we have large international retailers which have recorded sales increases of around 2%-3%. They will have a rent reduction of 23%.
On the other hand, we have some smaller tenants which have seen sales declines in the order of 25% and are going to witness a rent increase of 42%. This to say that the law does not achieve its objectives and has been incorrectly drafted, and the impact that it has on us, on Sonae Sierra specifically. I will not be able to tell you the exact figures, but I think I give you the rough guiding figures for you to be able to calculate what you think it is going to be.
Okay. Thank you, Luís. Rui, do you want to take the Sonae MC one?
Good afternoon to you all, and especially to you, João. Regarding our like-for-like sales, and especially on the third quarter and up to now, we are having positive like-for-like sales and the best inflation rate, according to the inflation rate that we are measuring internally. That is approximately 2%, and it's pretty much influenced by the prices that we are witnessing in the fresh produce. For now, that's what we can tell you regarding the sales in the third quarter.
Thank you very much.
Thank you, João.
Our next question comes from José Rito of CaixaBank. José, your line is now open.
Yes. Good afternoon. I have one question on Sonae MC in terms of margin evolution and the decline of 20 basis points that we saw in H1, if this is a good reference for the full year. My second question on Sierra, you mentioned that the impact on indirect results came from the yield increase on the properties. If you can specify how much was, in average, the increase in H1 in the property yields, and if you expect a further increase in yields in the second half of the year. Finally, on NOS, now that Zon has been dissolved, what are the implications in terms of the stake that has been seized? Namely, if the court could now revert this, considering that Zon has been dissolved. That's it.
Thank you, José. I will take the NOS question first again, and then we'll hand it over to Rui and Luís. Just a slight correction there. Zon has not been dissolved. It has not been terminated yet. We have announced an agreement with our partner to do it, but the execution of the termination of the JV is still not completed. Obviously, the ideal scenario to execute this operation is one where the court allows for a smooth termination of the JV and the sharing of assets and liabilities between the parties. We are hopeful that this scenario will be possible in the near future, namely that the seizure of shares, the measure that was taken by the court, will be changed in order to allow this to happen as smoothly as possible.
Rui, do you want to take the question on the market evolution at Sonae MC?
Hi, Greg. Good question. Good question. Unfortunately, I have some difficulties to give you the guidance because we are living in a very volatile economic and social environment. I have lots of difficulties to give you a proper figure. Frankly, I don't know. I don't know. I don't know. Frankly, I don't know. I don't know what will happen tomorrow, and if the year end will be tomorrow, probably I would tend to say yes. It would be more or less the figure that we would have until the margin will be pretty much the same that we have in the first half. Frankly, for the year end, I don't know. Frankly, I don't know. The years to come, the months to come, will be so volatile. Frankly, I don't know. We don't know if we will have a second wave of the COVID-19.
I don't know if we will have a second outbreak that will be huge and massive, which we need to respond, and we need to—frankly, I don't know. I apologize.
No, no, it's okay.
Frankly, I don't know.
In terms of the evolution in Q1 and Q2, I think that in Q1, the margin underlying terms was broadly stable, and it declined slightly in Q2. What was the main flag for the margin in Q2? Going forward, I understand that bonus, you paid some bonus in Q2, I think.
Yeah. We told the market, and we referred that we considered also some extra costs that we considered, as well as being regular related to COVID. Yes, in the third quarter, we registered direct costs and investment costs from crisis management initiatives, mainly including incremental staff bonuses, as you mentioned, to reward store and distribution center associates, safety expenditures regarding incremental cleaning efforts, sanitizing materials, and personal protective equipment that you were mentioning a while ago. Total COVID in the first half totaled roughly EUR 13.5 million, and that was totally recorded. The majority of the costs was totally recorded in the second quarter of this year. That is why our margin was a little bit penalized in the second quarter. That is pretty much it.
Okay. I understand. From a competition point of view, are you seeing any major changes, let's say, over the last six months versus what was last year? Just to understand if this margin, specifically margin impact in Q2, was mainly on these COVID-19 extra costs, or eventually, if you had to be a little bit more aggressive on prices, how it stands in terms of competition environment?
It is very difficult to comment on competitive strategy as well. I would prefer not to comment on competitive strategy. Up to now, we are seeing some competitive reactions, which we feel are pretty much normal. We basically see that the promotional activity suffered a little bit decrease in April, but it was normal due to the COVID situation, to the peak of the COVID situation. Now it is coming to the normal situation, to the normal figures that, according to Nielsen, we have come to the normal ratios that we were having in the last year. We are coming to the normal situation, to a normal situation that we were having last year.
Okay. Okay. Thank you.
Everything is coming to the normal situation.
Okay. Okay. Luís, do you want to take the questions on mute?
Sure. In terms of the yield evolution of our portfolio in Q2, we saw, on average, across our European portfolio, yields increase by 10-20 basis points. In Brazil, yields increased by 50 basis points, five zero. In Brazil, we had seen significant yield tightening over the past. The total impact and valuations is driven by 1/3 operational impacts and 2/3 yield compression—sorry, yield expansion—in terms of the valuations going forward. Bear in mind that these valuations were conducted in June at a point in time when the lockdown was in the process of being lifted and when some impacts were still uncertain.
Also, in Portugal, the law was just rumored to be a reality when the valuations were conducted, which is also why these valuations, as an industry practice, included a material valuation uncertainty disclaimer, which reflects the uncertainty of the valuations at the time and going forward. Our view is, I mean, from a fundamental point of view, I mean, there are no real reasons as to why valuations should shift significantly. One, because we're seeing a very solid, coherent recovery of sales in our shopping centers. In July, for example, trading outside of Lisbon, because Lisbon, of course, was more impacted by the opening hours. Outside of Lisbon, we saw a 25% decline in sales compared to last year. We're seeing very encouraging figures now in August as well. These figures are overestimated for what was—look, the decline looks higher than it really is because of two factors.
It's basically restaurants and cinemas are the ones that are seeing the biggest declines. All the other sectors are quite below this average that I mentioned, your 25%. On one hand, from a fundamental point of view, we are seeing a good recovery continuing going ahead. Interest rates continue to be low, and there's no sign as to why they should increase. All of that should help support yields. Having said that, we do understand that value-add center financial markets are under significant pressure due to COVID and due to uncertainty. Concluding, I do see that there is significant uncertainty in valuations going forward, and we see the risk more on the downside.
Okay. Understood. Thank you.
Thank you, José.
As a reminder, it is star one to ask a question. I repeat, star one. Our next question comes from Tim Attenborough of Santander. Tim, your line is now open.
Yeah. Good afternoon, Paulo. Thanks for taking my question. Most of it should have been answered, but just a couple of clarifications. Were you just saying on Sierra that the new law assumptions are not in the NAV? The next valuation will be what, at the end of December? Thank you for all the color that you've given us. Next question for Rui. I missed what you were saying on like-for-likes and the sort of exit rate. April's like-for-likes at MC were what, 4.6%? That implies quite a strong sales exit rate. Is that a fair assumption? Could you repeat what you said about fresh deflation? My last one would be another great quarter from Worten. Is Spain now break-even? I suppose the real question is, is now a 5% EBITDA margin the new normal? Thanks. I'll leave it there.
Thank you, Tim. Let's start in order. Let's start with Luís and the question on Sierra.
Yes. Okay. Hi, Tim. You're right. The new law assumptions were not reflected in the NAV. I mean, the valuer at that time probably assumed a probability of it occurring, but it was only being rumored to affect that and like any other risks that exist at the time, like it would normally do. The actual law was not in place yet, and it only entered into—it only became law by the end of July.
As I mentioned to you, in terms of its impact from an operational point of view, the figures I gave you earlier, the only other thing is if the valuer does not want to attribute a risk premium to Portugal for regulatory risk, which I suspect what happened was pretty much unexpected and unseen in any other country. I doubt that they will do that, but I think that is the only meaningful risk that I see. One thing.
How would you see—sorry to interrupt you.
That's okay.
Could you just—how would you see yields moving in Europe in the second half? I'm just really trying to get a feel or reassurance on the NAV. This new law only runs until the end of the year.
Correct. This new law only impacts up until December this year. It basically goes from August to December. When you mean Europe, I suspect you mean our portfolio in Europe. That must cover—we do not cover the countries which we usually see significant yield evolutions and where most of our peers trade in, like in the U.K., like France, like Germany. We do not operate there. We operate in Portugal, Spain, Italy, Romania, Greece, etc. It is a difficult question for me to answer. I would say that what we have seen in Q1 is a meaningful shift, is a very meaningful shift. It will depend now as to whether valuer will concede to market pressures around COVID impacts or whether they will look at fundamentals of the assets. It will also depend on whether there is another wave or another lockdown.
What I can tell you, rather than throwing out a figure which would just be a guess estimate, I think the shift that happened in June is meaningful, and there are significant significance in our portfolio as to why any valuation future changes, which I flagged where the risk is on the downside, could be very material. Tim, I have to qualify this with the massive uncertainty that's currently out there.
Understood. Thank you for that.
Thank you, Luís. Rui, do you want to take the questions on like-for-likes and also fresh deflation?
Yes. Tim, I apologize, but I need to ask you, if I may, I do not know if I failed to understand you properly. You were asking me like-for-likes regarding the third quarter, last or April. I missed to understand you properly.
Okay. Sorry. Your like-for-likes in April were, what, 4.6%? The figure you actually reported of 6.2% implies a strong exit rate. I just wanted to know if that was a fair assumption and good momentum going into July and August. The other part was I missed what you said on fresh and deflation. I wanted to try and get a view of inflation or deflation in 3Q.
First of all, our like-for-likes in April was a little bit higher than 4.6% due to the fact that we're in the middle of the pandemic. In fact, our like-for-likes in April was a little bit higher. If I said it was 4%, I apologize. It was a little bit higher. That is why we justify like-for-likes so high during the second quarter, because we have, in fact, like-for-likes much higher in the second quarter as we faced it in the report that we launched yesterday.
I think where Tim was going is if we saw an acceleration of sales growth throughout the quarter. If we started at roughly a level of around 4-5% in April and then accelerated that sales growth in May and June and going into Q3, if that momentum still stands.
Sorry, João, I missed your point. I was looking for the other report. I missed your point. Could you repeat?
Tim, please correct me if I'm wrong, but I think what Tim was asking is if the sales growth momentum increased throughout Q2. If we started out with a sales growth of around 4%-5% and then this accelerated in May and June, and if that acceleration in sales growth is also impacting Q3 and going into Q3, if we're seeing a more accelerated sales growth.
Oh, okay. You are not considering year-on-year. You are considering year-on-month. Month-on-month.
Correct.
Okay. Okay. Okay. Anyway, April was a good year. As we referred on the previous conference call, we were, as we said back in that conference call, we were witnessing very good sales due to the pandemic and to the response of the peak of sales that we were having back in that month. That is why we were having very good sales in the second quarter. Now, focusing on the third quarter, because I think that is what you, Tim, you were basically focusing your question, right?
Yes, correct.
Focusing your question. On the third quarter, what I was basically referring to João a while ago is that now we are having positive like-for-likes above inflation rate. Our inflation rate up to now, measured by us, is approximately 2% influenced, again, and continuing to be influenced by the peak that we are witnessing on fresh produce as we were having, for instance, during May and June as we were having here in Portugal. That is what we are having today. We are growing, continuing to grow in volumes up to now, up to now, growing in volumes in Sonae MC.
Okay. I've got it. Thank you. Thank you. There was the last question on Worten.
Yes. Paulo, would you want to take that one?
Yeah. Good afternoon to you all. Thanks, Tim, for the questions. Regarding Spain, Spain's profitability improved during the quarter given the closure of non-profitable stores last year and some of them already this year. Also, because we implemented, following the pandemic, a series of cost control measures, including temporary layoffs in Spain, mainland, and the Canary Islands. The results that we are seeing overall in Worten for the quarter are being delivered in a quite extraordinary environment. It is very difficult for us to look forward and say this is the new normal. In addition to that, we will have a third and fourth quarter that we think will continue to be impacted by COVID-19. It is very difficult for us to point you towards a new normal of a big margin just yet.
We will need to wait for the situation to normalize, get back to more regular operations to see where we stabilize after all the changes that we've been implementing and after the pandemic becomes under control.
Okay. Understood. Thank you.
Thank you, Tim, for your questions.
Our next question comes from António Seladas of AS Independent Research. António, your line is now open.
Thank you very much for the presentation. Just on Worten and Sonae Fashion, two questions. For Worten, taking into consideration that Spain was most of the quarter closed, should we see more closures on your stores in Spain, or do you think that the current infrastructure, the current level of operation in Spain is fine? That is the first question. Regarding Sonae Fashion, should we see more digital from now on, more online shopping and less overture, or will you keep your plan of keeping opening new stores, namely on Salsa? That's two questions. Thank you.
Thank you, António. Paulo, do you want to continue and take the Worten question first, and then we'll hand it over to Miguel?
Sure. António, thanks for the question. Regarding future closing of stores in Spain, we are principally analyzing the performance of all the stores. As I commented before, the current situation is quite extraordinary. We will be monitoring the performance of the stores going forward, see the impacts, and how structural are some of the impacts that we are seeing in the market, namely the online growth and everything else. Then based on real performance of each store, we will decide on what to do in the future. For the moment, I think it is very, very early to comment on future closing of stores in Spain.
Do you think that? Okay. I understand that. Is it something that you believe in two or three quarters you will have a picture, or do you need more time to understand what you should do in Spain?
Again, it's difficult to comment given that the pandemic is still ongoing, and it's difficult to foresee what will be the future impact. Having said that, hopefully by the year-end or beginning of next year, we should start to have a more clear view on how all this should be evolving.
Okay.
António, let me just add to what Paulo just said. I mean, obviously, Paulo mentioned that there's a lot of uncertainty right now regarding what is going to happen in terms of macroeconomy in the different geographies and in Spain as well. I think we made a statement recently that 2020 would be our last year of losses in Spain, and we are still committed to make that happen. Whatever decisions we take in the next few months will be towards the goal of achieving this outcome of 2020 being the last year in which we register losses at Worten in Spain.
Okay. Thank you very much. Thank you for complimenting.
Understood.
Miguel.
Thank you for the question, António. Starting by the end regarding the stores, our plans do not include the opening of additional square meters. We want to have flexible store networks, and we want to be present in locations that help us to be close to our clients. At this moment, we want to optimize what we have. We will probably relocate some stores, reduce or close others. If some good opportunity arises, we might open a new location in total alignment with the strategy and positioning of our brands. Having said that, for the next years, obviously, we'll be especially focused on developing our online operations, taking advantage of all the efforts we are doing regarding new platforms, new organizations, and dedicated teams, and benefiting from the celebration that we had in the last month that confirmed the potential of our value proposition.
Okay. Thank you.
Thank you, António.
As one final reminder, that is star one to ask a question. That is star followed by one. We do have a follow-up question from José Rito of CaixaBank. José, your line is now open.
Yes. Hello again. Just on Worten, just to make sure you mentioned and to clarify if the like-for-like was positive in Spain in Q2. Also, if it will be possible to maintain an online operation in Spain without physical stores. Is this feasible from an operational point of view? Not sure if it makes sense just to basically clarify because you have at least the experience of having stores closed in Spain in Q2. Thank you.
Okay. Paulo, the floor is yours. Paulo?
Sorry, I was injured. Thank you, José, for the question. Regarding the like-for-like in Spain for the quarter, honestly, it is quite meaningless. We closed all the stores during most of the quarter, so I do not think that it is really relevant to look at the like-for-like during the Q2 that we operate and a few stores that were open. Regarding keeping an online-only operation in Spain, we have not studied that scenario. We will have to decide what to do. As João was saying, we are committed to deliver our plan of having this as being the last year where we have lost in the Spanish market, and we will act accordingly until the year-end. That is what we are working on.
If we keep the online in Spain or not, and how to do it, and only the online in Spain or not, it will depend on how the business is going forward. It is very difficult for me to comment on online-only operation in Spain. We do not have an online-only operation in any of our geographies. Today, that has not been our model. It is difficult for me to comment on that.
Okay. Thank you.
Okay. Thank you, José.
We also have a follow-up question from João Pinto of JB Capital Markets. João, your line is now open.
Hi. Hi again. On Sonae MC, a couple of questions, Luís if I may. The first one, could you share your market share evolution during the second quarter? Sorry if I missed it. Finally, if you could elaborate on the current consumer dynamics, is traffic improving, or are consumers still going less often to supermarkets? Also, is the sales mix coming back to normal? How did the environment evolve in the third quarter versus the second quarter? Thank you.
Thank you, João. Luís.
João, hi again. Regarding the market share, we grew, according to Milton, we grew 50 basis points this first half of this year. We gained market share. To give you the exact figure of market share is very difficult, as you may understand. There is no universal institutional entity to give you the proper market share. Usually, we follow, as you know, the client retail data. We do not have yet the figures for 2020. Our estimates for the first half of 2020 are between 23.7%-23.9% based on National Statistics Institute and Milton. That is what we have for this year. Regarding the second question, if you could repeat, please, João, if you do not mind.
Yes, sure. Just if you could give some color on the current consumer dynamics. If traffic is improving or if consumers are still going less often to supermarkets. The same thing for the sales mix. Is the sales mix?
Something fall? Sorry?
Sorry?
The same thing fall?
For the basket mix, for the sales mix, is it coming back to normal or mainly basic products that people are purchasing?
Some color. Okay. In this last quarter, the second quarter, we identified some differences in the consumption of the customers. During the week, customers started to behave in a different way in our stores. For instance, they start to buy at different hours during the day due to the lockdown. They started, for instance, in the past, they used to buy at the end of the day. Now, they used to buy more concentrated during the day, meaning during the morning and the beginning of the afternoon, more concentrated during the working days. Today, for instance, during the weekends, weekends started to lose some weight comparing to what they used to have in the past. Frequency decreased a lot. Average market increased heavily. Consumers continue to privilege the fresh produce, continue to privilege proximity, continue to value these things. Online, for instance, online grew a lot.
They grew a lot. They are something that we are witnessing very well. Online grew heavily. We invest a lot in the online to respond to the customers, to the customers, in that prompt. That is pretty much what we witnessed in the change of the consumers in the last quarter. That is what happened in that prompt. That is probably what we could do in terms of in that area. I think that is basically it.
Okay. Thank you very much.
Thank you, João.
As there are no more questions, this will conclude today's event. We thank you all for your presence today. Ladies and gentlemen, you may now disconnect your lines.
Thank you, everyone. Talk to you in November. Bye-bye.