Earnings Report /
Turkey

Migros: Very impressive results; new era for Migros

  • Migros realised TL441mn net income in 2Q22, better than our estimate of TL213mn and consensus estimate of TL190mn.

  • Higher operational efficiency as well as lower financial expenses led to strong 2Q22 results.

  • İn addition to strong 2Q22 results,  upward revision to 2022 guidance looks encouraging

Cemal Demirtas
Cemal Demirtas

Head of Research

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ATA Invest
18 August 2022
Published byATA Invest

Migros realised TL441mn net income in 2Q22, better than our estimate of TL213mn and consensus estimate of TL190mn. Significantly higher than expected EBITDA and some accounting changes were the reasons behind higher than expected net income.

The management revised its 2022E (1) topline growth guidance to “80-85%” from “55-60%” versus our estimate of 78.4% (2) new store openings guidance to c.350 from 250 + new stores (3) capex guidance to c.TL1,600mn from c.TL1,500 amd (4) its EBITDA margin guidance to “c.8.5%” from “8-8.5%” versus our estimate of 8.2%.

Topline growth of 89.7% in 2Q22 was 2.5pts above our estimates. Despite trading-down, Migros realized significant sales growth in 2Q22. Migros’ market share in total FMCG markets inched up c.10bps q/q, at 8.5% in 2Q22 while its share in modern FMCG inched up by 20bps q/q to 14.8%, y/y, during the same period.  Migros opened 83 net new stores in 2Q22, reaching 2,681 stores with 1,713K sqm net sales areas. Online service stores also increased to 955 in 2Q22 from 899 in 1Q22 and 826 in 2Q21.  Online sales increased by 60% y/y to TL2.0bn in 2Q22, constituting 12.5% of Migros’ consolidated revenues.

EBITDA margin of 9.8% (incl. IFRS 16) was 161bps higher than our est. of 8.2% and consensus est of 7.5%.  Gross margin of 25.4% was 46bps above our estimates whereas opex/net sales ratio of 18.2% was 70bps below our estimates in 2Q22. Our reported EBITDA (including IFRS 16 impact) estimate for 2022 stands at 8.2% versus the company guidance of “c. 8.5%”.  Considering the significantly stronger than expected EBITDA and positive impact from and changes in accounting of employee termination provisions, we will further review our estimates following the analyst teleconference.

We believe adj-comparable EBITDA margin is also as impressive as reported EBITDA margin of 9.8%. Migros added lower provision for employment termination benefits and unused vacation pay liability amounting a sum of TL154mn in 2Q22 which was TL111mn in 1Q22 (before accounting changes, this figure was TL95mn higher). Excluding these adjustments, Migros’ comparable EBITDA margin for 2Q22 declines to 8.9%. Moreover, if we further adjust with interest on term purchases, Migros’ adj-comparable EBITDA in 2Q22 increased to 6.6% in 2Q22 from 5.0% in 1Q22 (before accounting changes 1Q22 adj-comparable EBITDA margin was 4.2%).

Migros’ Net Cash/EBITDA (excl. IFRS16) increased to 0.6x in 2Q22 from 0.3x in 1Q22.  When we add leasing liabilities of TL3.67bn due to IFRS 16, reported net debt increases to TL1.77bn from TL1,903mn net cash. Including the IFRS 16 impact, Net Debt/EBITDA now stands at 0.40x in 2Q22 vs 1.40x in 2Q21 and 0.70x in 1Q22.  Excluding IFRS impact, Migros’ net cash position increased to TL1,903mn in 2Q22 from TL816mn in 1Q22, supported by strong operating cash flow. Migros had no FX short position as of 2Q22. The company’s balance sheet is fully covered against TL depreciation and high TL interest rates will have limited negative impact at the bottomline.