Zabka Group S.A. (ZAB) Earnings Call Transcript

Good afternoon, and welcome to the Q3 2026 financial results of Zabka Group. [Operator Instructions] This webcast will be recorded, and an archive of the webcast will be posted on the company website. By participating in the Zoom call, you are agreeing that recordings made during the event may be shared with Zabka Group. [Operator Instructions] I'd now like to hand the call over to Filip Paszke.

Thank you very much. Good morning or good afternoon, and welcome to our Q3 2026 earnings call. My name is Filip Paszke. I'm the Director responsible for Corporate Development and Investor Relations. We have about 20-minute presentation followed by a Q&A session. Now I'd like to hand over to Mr. Tomasz Suchanski, CEO and Chairman of the Board of the Zabka Group.

Thank you, Filip. Good morning or good afternoon, everyone, and thank you for joining us. I'm joined today by Marta Wrochna-Lastowska, our CFO; and Tomasz Blicharski, our Chief Strategy and Development Officer, and my successor in the role of the CEO. I will now start with the key highlights from the third quarter. Zabka again delivered consistent growth and improved profitability. Sales to end customers reached PLN 9.6 billion, up 12.3% year-on-year. Like-for-like growth was 3.5%, below what we reported in the previous quarter, but still ahead of the broader market. We continue to expand the network. At the end of September, we operated 13,405 stores across Poland and Romania with 1,410 gross openings over the last 12 months. Profitability continued to improve. Adjusted EBITDA increased to nearly PLN 1.5 billion, up 16.5% year-on-year, while the adjusted EBITDA margin rose by 0.6 percentage points to 15.6%. Our balance sheet also remains strong. Net debt to adjusted EBITDA stood at 0.7x, improving by 0.4x year-on-year. These results reflect continued progress across the business. We are expanding the network, growing ahead of the market and improving profitability while maintaining strong cash generation and disciplined approach to costs. Tomasz will now take you through the market environment and our strategic execution in more detail.

Thank you, Tomasz, and hello, everyone. It's a pleasure to meet you again. The market environment was more difficult in the third quarter. We observed rather subdued grocery spend. Inflation increased moderately, partly due to the higher fuel prices. At the same time, real wages continued to grow. However, the growth stalled and is at the lowest rate in a number of quarters. This growth, however, still supported household purchasing power. As you can see at the top chart here on the slide, the inflation lately has been outpacing the wage growth. Consumer confidence remained relatively resilient, although consumers continue to be selective in their spending. This is also visible in the retail data. Total retail sales grew by 3.3% in September, while growth in food, beverages and tobacco was only 1.4%. This confirms that the environment for food retail is somewhat subdued. Against this backdrop, Zabka continued to outperform and gain market share. On a rolling 12-month basis, our share increased from 10.4% a year ago to 11.3% at the end of September. So while external conditions provided limited support, our relative performance remained strong. We continue to grow ahead of the market, supported by network expansion and the performance of our strategic categories. Moving to our strategic pillars. We continue to make progress across each of them. On expansion, we remain on track with our upgraded ambition. Over the last 12 months, we opened 1,224 stores in Poland and 186 in Romania. This brought the total network to 13,405 stores and strengthened our footprint across both markets. On like-for-like, we want to be ever closer to the customer and increase the lifetime value as well as drive loyalty and increase engagement. Therefore, we are launching initiatives aiming to use the data to engage customers in a more targeted way. Our so-called customer growth loop connects insights from the Zabka app, retail media and stores. This allows us to identify specific customer groups, reach them with personalized communication and measure the impact against the control group. Alongside our core business, new growth engines also continue to expand the reach as we continue to test and develop new growth initiatives that strengthen customer engagement and broader customer access to our ecosystem. During the quarter, this included the further development of Triki, the expansion of Jush! and delio into Katowice metropolitan area and the continued rollout of our vending network, which reached 275 machines and generated almost 1 million transactions 1 year after launch. And with that, I will hand over to Marta, who will take you through the financial performance in more detail. Thank you.

Thank you, Tomasz, and hello again, everyone. I will start with the key financial highlights for the third quarter. Sales to end customers reached PLN 9.6 billion, up 12.3% year-on-year. Growth was supported by continued network expansion, solid performance from newly opened stores as well as like-for-like growth of 3.5%. We opened 365 stores in Poland and Romania during the quarter, bringing the total network to 13,405 locations, as Tomasz mentioned. With 1,410 gross openings over the last 12 months, we remain on track to deliver our full year expansion ambition. Profitability improved further. Adjusted EBITDA reached almost PLN 1.5 billion, up 16.5% year-on-year. Margin increased by 0.6 percentage points to 15.6%, and it was supported by operating leverage, continued efficiency improvements and disciplined cost management. Adjusted net profit increased by 13.2% to PLN 572 million. This predominantly reflects stronger operating performance of our business in the third quarter. Cash generation also remained strong. Free cash flow reached PLN 736 million, while net debt to adjusted EBITDA stood at 0.7x at the end of September. The third quarter, therefore, brought continued double-digit sales growth, further margin progression and robust cash generation despite a subdued market environment. The 3 points are worth discussing when talking about our key financial metrics. First, gross profit increased by 17.3% in the quarter with the margin improving by 0.8 percentage points. This was supported by positive category mix, better terms of trade, and continued efficiency improvements. Second, adjusted EBITDA grew by 16.5% and the margin increased to 15.6%, up 56 basis points. On the year-to-date basis, the margin reached 13%, reflecting operating leverage and strong performance in our core Polish business. We are firmly on track to deliver our full year guidance in terms of profitability. Franchisee margin increased to 16.7% of sales to end customer in the quarter and 17.3% year-to-date. As we have highlighted before, this metric should be addressed over a longer period given the phasing between quarters. The year-to-date increase reflects our continued investment in relationship with our franchisees. And finally, net profit increased by 13.2% in the quarter. For the first 9 months of 2026, it grew by 36.6% with the margin improving by 60 basis points to 3.4%. This was supported by stronger operating performance and lower financing costs. Those costs fell in line with the trend observed throughout the year, but the dynamic was affected by the fact that in the third quarter 2025, as you may recall, we recognized an incremental gain on loan modification under IFRS, reflecting the improved margin on the refinanced facilities. The EBITDA bridge shows continued margin expansion, driven by top line growth and stronger profitability in Poland. We continue to demonstrate strong discipline in driving operating efficiency. Our store cost and logistics costs fell year-on-year as a percentage of sales. We have also seen improved efficiency in our support functions. This allowed us to keep the costs flat as we scale our business at a rapid pace, and at the same time, to reinvest in growing our presence in Romania visible within the new growth engine. Our adjustment reached PLN 51 million in the third quarter, mostly related to noncash long-term incentive plan costs. In the end, both EBITDA as well as EBITDA margin increased significantly year-on-year. On cash flow, we continue to convert operating performance into strong cash flow generation while funding the growth of the business. Free cash flow reached PLN 736 million in the third quarter, up 15% year-on-year, while conversion remained above 60%. For the first 9 months, the free cash flow increased to almost PLN 2 billion. CapEx increased as we continue to invest in the network expansion, including the accelerated rollout of our stores in Romania. Working capital reflected the usual seasonal outflow after the summer peak with the year-to-date movement mainly related to the timing of inventory purchases and cash settlements. Strong cash generation continues to translate into further balance sheet strengthening. The net leverage was at 0.7x at the end of September, flat from the end of second quarter, following the dividend payment of PLN 530 million in July this year. This represents an improvement of 0.4x on year-on-year basis. Given our strong liquidity position, we also made an additional PLN 400 million of repayment under the current SFA facility. This leaves us with a strong balance sheet and continued financial flexibility to invest in the growth of our business. And to conclude, let me reaffirm our midterm expectations. We continue to target over 1,300 new stores opening in 2026 and 1,300-plus openings per year in the medium term across Poland and Romania. For like-for-like sales, we continue to expect mid- to high single-digit growth for the midterm with current trends suggesting an outcome in the lower end of the range this year. On profitability, we expect adjusted EBITDA margin to remain stable at the top of the end -- at the top end of 12%, 13% range. And on the bottom line, we continue to expect a gradual improvement in adjusted net income margin towards around 4.5% in the medium term. I will now pass on to Tomasz for his concluding remarks.

Yes. Thank you, Marta. Ladies and gentlemen, as you all know, this has been my final results call as CEO of Zabka Group. I would like to thank you all for the discussions, questions and support over the years. I'm proud of what we have achieved together, and I'm confident that Zabka is ready for the next chapter. And with that, we are now ready for your questions.

[Operator Instructions] Okay. Well, it appears we don't have any questions today. So that concludes today's call.

No, I believe -- sorry, operator, I believe we have a question. We can see the question on screen at least, right?

Okay. We'll hand back to you for the written questions. Thank you.

Yes. We've got a question from [indiscernible]. Do you consider raising number of openings target for 2026?

Yes. I mean, we have, I think, disclosed the pace of expansion and our target is to open more than 1,300 stores for this year, and we are confident we'll meet the target as described and as confirmed during today's session.

[Operator Instructions] Okay. I don't see any -- I see questions coming in now. We have a question from Jakub Krawczyk with ODDO BHF. Okay. We are not getting any audio. So I'm going to move on to Richard Trainor with Bernstein.

So my first question is about the higher margins. I was wondering, have you seen an impact in margins from fuel costs yet? Or is that still to come?

Yes. So we have seen some, but for us, it is not the major driver for our results. So we were able to fully offset the negative impact with other efficiencies, as you have seen within our results.

Fantastic. And my second and last question, I'm just trying to understand whether the deflation in the wider grocery market has had any impact on your like-for-like growth? It sounds like you think that the main reason for lower like-for-like growth was about weather and footfall. If that's right, has Zabka become more expensive relative to supermarkets? And if so, is that impacting customer behavior?

Yes. I mean, we're not playing in the same -- kind of in the same -- exactly the same sector as supermarkets. The missions that we serve are different. They are impulse missions and only 30% of products overlap with discounters, for example, right? And on some of these products such as tobacco, the prices are regulated within this 30%, right? So therefore, this is not directly comparable. And what we have seen, though, over the summer period is a mix of a few factors that you have raised, but we see that, generally speaking, the market is somewhat subdued in terms of the growth, right? The Nielsen data showed the market growing at around 1%. But it doesn't reflect, as you have described on footfall, it's more like a mix of different things. Having said that, if you look at our trends over the last few quarters, generally, the like-for-likes that we have seen in the quarter 3 are in line with prior quarters.

That's great. And Tomasz, thank you for your kind comments about us analysts and congratulations and good luck with the next step.

Our next question will come from Volodymyr Shkuropat with Kepler Cheuvreux.

So I have 2 questions. I'll go one by one. My first question is about the consumer demand, just to follow up. As you mentioned, there is a subdued food-related demand currently. Where did you see this in your own stores? Was it more in how often customers visit, how many items they buy or in specific categories?

I mean, certainly, when we look at the -- I mentioned that the overall growth, I think, was recorded by our statistical office at a little bit more than 1%. Nielsen had it at 1% as well. Historically, Nielsen data was somewhat higher. Now if you look at what is working very well with us, certainly -- [Audio Gap] -- which we continue to develop. We are very strong on daily ready meals, so lunch box type of offer where we sell up to 1 million per day on our kind of promotional day. There are categories which are kind of weather-related and that's kind of dependent on the weather. The summer weather wasn't very stable this year. But generally speaking, there isn't one particular area where you could kind of point it down and say that that was certainly performing much worse than the others.

Okay. And on the like-for-like guidance, which you cut to mid-single digit now. My estimates point to around 5% in the fourth quarter in order to reach 4% for the full year. Do you see any acceleration of like-for-like in October so far? I think the weather is warmer, so this should support.