BIM’s gross and EBITDA margins beat our expectations by 100bp in 2Q09. The firm successfully implemented its plan for growth through new store openings in the period. With the expected improvement in the trading environment in 2H09, we expect BIM to improve its like-for-like (LFL) figures going forward. Higher-than-expected profitability and the improving outlook have encouraged us to upgrade our forecasts and valuations. As we are currently working on these revisions, we maintain our Buy rating on the stock.
Below we give the highlights of the conference call held after the release of the 2Q09 results.
Gross margin: BIM continued to invest in lower product prices in 2Q09. Following a relatively higher than usual gross margin of 18.4% for 1Q09, BIM decreased prices of around 100 stock keeping units (SKUs) in 2Q09. This resulted in a small decrease in the firm’s gross margin to 17.8% in 2Q09. BIM expects the slight decreasing trend to continue in the quarters ahead as it intends to continue to invest in lower prices. BIM guides for gross margin at 17.5% in full-year 2009.
Like-for-like sales: Growth in sales at BIM’s mature stores continued to grow in 2Q09, although year-on-year growth is relatively low due to the exceptionally strong performance seen in 2Q08 (28% y/y growth). The cannibalization of rapid store openings also continued in 2Q09. LFL sales increased 2.3% to TRY 913m in 2Q09 versus TRY 892.5m in 2Q08. BIM expects LFL sales to start to rise in 2H09, as the impact of the continued investment in lower prices is realized and people continue to trade down to BIM from competitors.
Like-for-like basket size: BIM’s LFL basket size declined by 3.2% y/y to TRY 8.54 in 2Q09 from TRY 8.82 in 2Q08. However, this trend is expected to reverse in 2H09 as customers switch to private label products, which are 40% cheaper. BIM’s product inflation stood at -1.1% in 2Q09, taking the real contraction in the LFL basket size to 2.1%.
Customer traffic: BIM’s customer numbers have continued to grow at a healthy pace, with customer traffic up nearly 5.8% to 765 daily customers per store in 2Q09. This growth gives the management further confidence in the robustness of its business plan.
Product mix: BIM made further progress in expanding the number of private label products in 2Q09: the company reiterated the target announced at the end of 2008, namely private label products to account for 60% of the overall product mix by the end of 2009. Private label sales grew to 58.4% in 2Q09, significantly above 54.7% in 2Q08. Branded products and spot products have shown sales declines as private labels have grown. There was also a significant decline in sales of exclusive products in 2Q09.
EBITDA: EBITDA decreased slightly to TRY 73.8m in 2Q09 from an exceptional high of TRY 81.2m in 1Q09. BIM is particularly pleased to have maintained this strong performance during the currently difficult trading conditions. BIM’s EBITDA margin came in at 5.7% in 2Q09, firmly above the target range of 4.5-5.0% for 2009. Looking ahead, BIM plans to further lower its prices to improve its competitive advantage on the market and to accelerate top-line growth. As a result, BIM targets an EBITDA margin of just over 5% for 2009.
Stores: BIM opened 145 new stores in 2Q09, bringing the total number of stores open to 2,496 as of 30 June 2009. This further extended the firm’s leading position as the largest retailer in Turkey in terms of store numbers. BIM has opened 211 stores so far this year, including 33 seasonal stores, which means that the company is firmly on target to open 350 new stores by the end of 2009. BIM opened a new regional warehouse on the European side of Istanbul in 2Q09, bringing the firm’s total number of warehouses to six in Istanbul and 24 in Turkey at the end of 2Q09. Since 2Q09, BIM has opened two additional warehouses in Gaziantep and Izmir, taking the firm’s total number of warehouses to 26, of which 17 are owned by BIM and nine are leased.
Morocco operation: BIM is happy with its progress in Morocco: the company opened its first 10 stores on 11 April 2009 and had added a further three stores by the end of 2Q09. With the opening of another four stores to date, BIM now has a total of 17 stores in Morocco. BIM experienced encouraging net sales of TRY 1.91m for the period of operations from 11 April to 30 June 2009. As the Moroccan operation is still in the start-up phase, the company incurred a net loss of TRY 3.27m in 1H09. Capital expenditure in the Moroccan business remained in line with expectations at around TRY 5m, with a total cash injection of roughly TRY 13m since the foundation of the Moroccan enterprise. BIM aims to open a further 23 stores in Morocco by the end of 2009, which will bring the total to 40 stores in the country.