Koninklijke Ahold Delhaize NV

AEX:AD

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, good morning, and welcome to the Analyst Conference Call on the First Quarter 2023 Results of Ahold Delhaize. Please note that this call is being webcast and recorded.

Please note that in today's call, forward-looking statements may be made. All statements other than statements of historical facts may be forward-looking statements. Such statements may involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those included in the statements. Such risks and uncertainties are discussed in the interim report, first quarter 2023 and also in Ahold Delhaize's public filings and other disclosures. Ahold Delhaize disclosures are available on aholddelhaize.com.

Forward-looking statements reflect the current views of Ahold Delhaize's management and assumptions based on information currently available to Ahold Delhaize's management. Forward-looking statements speak only as of the date they are made, and Ahold Delhaize does not assume any obligation to update such statements, except as required by law.

The introduction will be followed by a question-and-answer session. Any views expressed by those asking questions are not necessarily the views of Ahold Delhaize.

At this time, I would like to hand the call over to JP O'Meara, Senior Vice President, Head of Investor Relations. Please go ahead, JP.

[JP O’Meara]

Good morning, operator, and thank you very much, and good morning, everybody else. I'm delighted to welcome you today to our Q1 2023 results conference call. On today's call are Frans Muller, our President and CEO; and Natalie Knight, our CFO. 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, which also provides extra disclosures and details for your convenience.

To ensure everyone has the opportunity to get their questions answered today, I ask that you initially limit yourself to 2 questions. If you have further questions, then feel free to reenter the queue. To ensure ease of speaking, all growth rates mentioned in today's prepared remarks will be at constant exchange rates unless otherwise stated.

Therefore, I'll hand over to Frans.

[Frans Muller, President, CEO and Chairman of Management Board]

Yes. Thank you, JP, and good morning, everyone. I'm pleased to report a strong start to the year, which clearly reflects the trust and confidence our customers continue to place in our great local brands. In times like these, our international portfolio of #1 and 2 local brands provides many advantages. On the one hand, it provides operational bandwidth and financial stability. And this means we can remain focused on our long-term growth and omnichannel transformation agenda. On the other hand, it allows us to successfully navigate short-term market volatility. This means we can actively counterbalance divergent trends to best support our communities and associates.

For the quarter, the headline numbers are strong. Net sales grew by more than 6% to EUR 21.6 billion, and diluted underlying earnings per share were up 10.5% to EUR 0.61. Our earnings trends were consistent with our expectations, driven by strong operating performance in the U.S. This was partially offset by increased energy costs in Europe and impacts at Delhaize Belgium, which I will come back later to. Foreign exchange shifts were also positive in the quarter, which, as you know, are expected to become a negative as we go through the rest of the year.

While I'm pleased with these headline figures, most important to me is the fact that we gained market share in most of our markets. The trends that we have delivered in recent quarters continued to stick. Customers are buying more fresh and healthy products, more own brands and are increasingly utilizing our growing omnichannel ecosystem. And this is not by chance. It's by design.

As you know, our business is built on some key fundamentals that have fueled sustained success year in and year out. And these include building and relative market share and brand strength by knowing our customers inside out; relentlessly delivering a high-value, high-touch customer proposition, reflecting the needs of local communities; and constantly introducing new high-tech, innovative and scalable platforms across our operations to keep the cost low, waste low and convenience and efficiency high. As we boost this formula by adding more integrated and real-time data into the mix, we are creating smarter and more sustainable customer journeys. This will dramatically speed up the pace of innovation we are able to bring to market, stretching our capability gap to competitors even further.

So to contextualize a little bit more, let's look at a few examples where our innovation and operating excellence is really shining through. Let's start with Albert Heijn, our largest brand in Europe. With inflation levels in the Netherlands at 18% in the first quarter, I'm proud of how quickly the team pivoted the assortment to support customers. For example, Albert Heijn expanded its Price Favorites, Prijsfavorieten, which is a high-quality product, private label at discount prices. They increased that range to 2,000 products, including the brand's most popular fruits and vegetables.

Even more interesting for the long term was the first deployment of new technology around dynamic pricing and markdowns. Developed over 3 years by an excellent team of data scientists, this proprietary first-of-its-kind and at-scale solution is a game changer for us, and it's only possible given the maturity of integrated processes at Albert Heijn, linking together store processes, electronic shelf labels and machine learning algorithms. I'm excited about the future value we will be able to extract for our company from this type of technology and, therefore, creating more value our customers and, at the same time, also helping us significantly reduce food waste.

The second example is about building deeper digital relationships at scale. A fully fledged, fully integrated 360-degree digital shopping experience is no longer a nice-to-have. It's, in the meantime, a must-have. And our foundation here is strong. For example, the loyalty program at Giant Food, Food Lion and Stop & Shop were named by Newsweek amongst America's Best Loyalty Programs in 2023. In Q1, we delivered 2.7 billion personalized offers to almost 30 million households, with a number of those households digitally engaged also up well over 10%.

The percentage of completely new customers to ADUSA brands in new sign-up is also rising, a telltale sign of how important the digital ecosystem is becoming when consumers begin looking for value across the competitive set. This year, we will make further progress with the rollout of our PRISM platform that brings together all the benefits of personalization, monetization and a creative experience.

The third example I would like to highlight is about the importance of store modernization. Food Lion exemplifies how powerful a clearly defined long-term plan can lead to growth and momentum. And while there were other factors, there is no doubt that the store modernization plan of the entire fleet of Food Lion stores from 2014 to 2021 contributed significantly to the 42 consecutive quarters of comp store sales growth we just reported. And as I outlined last quarter, Food Lion is now beginning its new multiyear wave of remodels under its omnichannel remodel program, starting with 70-plus stores this year. The first batch of 29 will be completed this month in Wilmington, North Carolina. Here, substantially -- here, sustainability also plays a major role in our plans, and we also look to extend Food Lion's tremendous 22 years track record as Environmental Protection Agency Energy Star Partner of the Year award for its work reducing energy consumption. The omnichannel retailer is the only company in the United States to receive this honor already for 22 years.

Moving on to healthy and sustainable on Slide 11. We discussed the bigger picture as it relates to this topic at length at our recent AGM. However, it is also important to look at the tangible steps we make, both big and small, quarter in and quarter out that make the difference. And I'm proud of the many accomplishments that you can see. In our sustainability work, collaboration across the whole value chain and transparency supported by external validation is critical. As a society, we will only succeed with our climate plans if we work together.

Good examples here are Albert Heijn and bol.com opening up their best practices and programs to other industry players. For example, Albert Heijn has recently opened to third parties the Better for Farmer and Nature program. And this program aims to improve animal welfare, the environment and farmers' earning power. bol.com is also going to help its sales partners, becoming more sustainable by offering a network of advisory and support parties. This should make it easier for bol.com's 52,000 sales partners to quickly find good help in mapping their carbon footprint, reducing and offsetting emissions and making their assortment more sustainable.

And in terms of external validation of our programs, I'm proud that both Albert Heijn and bol.com are taking the step towards B Corp certification, which is awarded to companies that meet high standards of corporate social responsibility. This work also extends to financial markets. In March, we successfully priced our inaugural green bond for EUR 500 million. And with this, Ahold Delhaize became the first corporate European borrower to issue 3 different ESG-related formats, confirming our ambition to set the pace in sustainable finance. The bond proceeds will be allocated towards project contributing to our healthy and sustainable targets.

As a final comment on the quarter, I would now like to give you some additional color on the recent announcement by the Delhaize management. On March 7, Delhaize announced its future plan with the intention to affiliate all 128 existing owned supermarkets in Belgium in order to guarantee a sustainable future for Delhaize in Belgium. This intention is fully supported by Ahold Delhaize, and we acknowledge the team's courage to change course to ensure a viable and healthy underlying business for the long term. Delhaize has been 1 of the Belgium favorite retail brands for over 150 years, and 4 out of 5 Belgium consumers regularly shop at Delhaize. Delhaize is the leader for fresh, healthy, quality food with an emphasis on sustainability. The company has a large network of 764 locations in Belgium and is pioneer in terms of digitalization, in particular with the SuperPlus digital customer loyalty program.

Currently, there are already 636 independent affiliated Delhaize stores under the AD Delhaize, Proxy Delhaize and Shop & Go brand names. And as you all know, the Belgium market has been difficult for many years: overstored, highly competitive and not very flexible. With the proposed change, Delhaize wants to reflect even more market trends, evolving consumer behavior and local presence. As such, its intention is to make the company future-ready, with an emphasis on local presence and entrepreneurship by relying on its successful affiliate partnership model.

This model is the only option for achieving renewed growth for these 128 supermarkets and also presents local entrepreneurs with a unique opportunity to join Delhaize and develop the brand's future together with our experienced, skilled supermarket employees. Delhaize Belgium will further continue to invest centrally in areas such as logistics, sourcing and marketing to provide optimum services to its network of stores.

In terms of the process, following the announcement, we launched an information and consultation period in which we have had 8 meetings so far with the union representatives. A next meeting is planned before the end of May. Discussions have not been easy, and there have been some actions in our supermarkets and distribution centers, the impact of which Natalie will cover in her remarks. However, more and more supermarkets have been reopening in the past weeks. Today, all integrated supermarkets are open and serving again our customers. Sales are also gradually evolving back to a normal level. The Delhaize team remains committed to the social dialogue and on reassuring associates by repeating what they have promised from the start: offering the associates to keep the same wages and conditions according to the contracts after the transition.

On that note, that concludes my comments on the first quarter 2023. Let me now hand over you to Natalie to talk more about the financials, and I will be back to discuss our outlook.

[Natalie Knight, CFO and Member of the Management Board]

Thank you, Frans, and good morning to everyone. Our performance in the first quarter once again highlights that we are a unique and resilient company and clearly reflects the trust our brands has earned from our customers. With the price/value equation of utmost importance to customers as their spending power comes under more and more pressure these days, our group's ability to move fast and proactively to visibly support customers on their shopping journey is clearly paying off.

Net sales in the quarter grew 6.3% or plus 9.4% at actual rates to EUR 21.6 billion. This is supported by group comparable sales growth in the first quarter of 6.2%. Group underlying operating margin was 4% in Q1, which represents a decrease of 20 basis points versus Q1 2022. Strong U.S. margin increases largely offset declines in the European margin and a reduction in group level insurance gains. Excluding the impacts of inflated energy costs and strikes, underlying operating margin exceeded the prior year level. Diluted underlying earnings per share in the quarter was EUR 0.61, up 10.5%, driven by strong underlying operating performance in the U.S. and, to a lesser extent, by positive U.S. dollar exchange rate effect.

Slide 15 shows our results on an IFRS-reported basis for Q1. The difference here versus our underlying figures are mainly due to the restructuring and related costs from our Accelerate initiative in Belgium.

On Chart 16, you see comparable sales growth by region, including our -- including and excluding weather, calendar and other effects, which show we delivered a strong, consistent trend over the last 4 quarters.

To share more on these developments, let's turn to our regional performance. In Q1, our U.S. sales continued to deliver consistent and strong performance. U.S. sales increased by 5.7% or plus 10.5% at actual exchange rates. Comparable sales ex gas grew 6.2% and 8.1%, excluding weather and calendar shifts that had inflated prior year numbers. And it's clear that customers are finding great value through our brand's various omnichannel proposition. Online sales were up 11.9%, with grocery online penetration rates increasing 40 basis points to 8.5%.

In terms of brand performance, Frans already discussed the continued strength of our biggest brand, Food Lion. Elsewhere, Hannaford also continued its impressive accomplishment, gaining market share now for 7 straight years since 2016 and growing 29 of the last 30 quarters. And at Stop & Shop, we continued to realize strong sales momentum from the remodeled stores, especially those 12 that we've recently reopened in the New York metropolitan area, where we achieved an uptick in both traffic and units.

Underlying operating margin in the U.S. was 4.8%, up 40 basis points from the prior year. In addition to continued sales leverage, this was also driven by lower logistics and distribution costs associated with our much-improved supply chain efficiency versus a year ago. We now have a higher proportion of self-distribution, covering over 80% of the supply chain in the U.S., enabling us to deliver important cost savings for our own brands in the region.

Turning now to Europe. Sales increased by 7.2%. Europe's comparable sales grew by 6.1%, and excluding the strike in Belgium, Europe's comparable sales increased by 7.7%. From a market point of view, Eastern Europe led the way with strong double-digit growth in every country. This is supported by our new CSE transformation program, in which we are aligning business models, sourcing and other scale drivers across the region. Progress here continues to exceed our own internal expectations. Also of note in Q1 is that grocery online sales in Europe increased by 4.6%, and importantly, we are seeing strong progress on e-commerce profitability, which is fully on track to become profitable in 2025.

Our Q1 underlying operating margin was 2.8% in Europe, down 70 basis points from the prior year. The impact of energy headwinds where costs are now more than 3x their 2021 levels and the aforementioned strikes in Belgium accounted for nearly 1-percentage-point reduction to underlying operating margin in the quarter. Excluding these 2 limited-duration impacts, underlying operating margins modestly exceeded prior year levels.

At bol.com, gross merchandise value, or GMV, excluding VAT, was EUR 1.3 billion, up 1.2%, growing over proportionately with third-party sellers. bol.com continues to be one of the strongest brands in the retail market, which is showcased by the fact that they won the best Dutch retail brand award again for the ninth time in a row. With each passing month, the online market is showing signs of recovery, with a particularly strong March for bol.com driven by campaigns like bol7daagse. We are also delivering strong results with our advertising and logistics offerings, with 13% growth in the number of partners using our advertising services year-over-year and a 5-percentage-point increase in overall network volumes through our logistics services.

Moving on to Chart 20. Q1 free cash flow was EUR 21 million, which represents an increase of EUR 42 million compared to the Q1 2022. This was mainly driven by higher operating cash flow, partially offset by higher income taxes paid.

That wraps up my financial review for Q1 2023. As this will be my last call for Ahold Delhaize, I would like to sincerely thank you and our analysts and investor community for your engagement and open dialogue. As I look forward to the future, I have full confidence in the Ahold Delhaize team's ability to maintain their strong position as a retail front-runner that consistently delivers prudent financial results. It's been a pleasure to be part of this team with Frans and everyone else at Ahold Delhaize, and I'm excited to continue to contribute to the success of this organization.

With that, let me pass the baton back to Frans for our 2023 outlook.

[Frans Muller, President, CEO and Chairman of Management Board]

Thank you very much, Natalie. As we look into the next quarters, our strong global portfolio of #1 and 2 local brands provides ample opportunities and support to navigate the environment. Quality, consistency and prudent decision-making wins out in difficult times. Without -- with our U.S. business remaining strong, our extensive and proven toolkit to manage inflation, the strengthening of our EUR 1 billion Save for Our Customer cost-saving initiatives and additional proactive actions through our Accelerate initiative, we are reiterating our 2023 full year guidance today.

In the U.S., our brands are well positioned as inflation levels and government support in particular, the SNAP emergency allotments start to moderate. In Europe, although inflation levels remain in the double digits, our brands are taking the right measures to continue to raise the bar competitively to drive long-term relative market share gains.

In 2023, we are also speeding up some of our big initiatives within our omnichannel ecosystem, monetization and mechanization, which, I'm convinced, will drive long-term competitive advantage and benefits for our customers. We are also continuing to explore new opportunities with our global, regional and brand leadership teams to create more agile organizations to capture more scale and empower our people to take action to drive efficiency as part of our Accelerate initiative. While some of these actions, like those initiated by the Delhaize Belgium team, take a lot of courage and are disruptive in the short term, I'm confident that these measures will also ensure the long-term success of our brands for the benefit of all our stakeholders.

So let me wrap up by saying we have a healthy outlook for 2023 with clear momentum. As high inflation persists and the recession index continues to rise, I'm convinced tougher times will further amplify the strength and resilience of our business.

Lastly, you all have seen our announcement last week that Jolanda Boots-Pijl will join us as our new Chief Financial Officer in October. I'm happy that Natalie and the financial leadership team will ensure a smooth transition to her. So that leaves me to thank you again, Natalie. Natalie's financial expertise and leadership have contributed to delivering strong financial results over the last several years. Also, our focus on sustainability and diversity have been greatly valued and will be truly missed.

And with that, thank you for your continued interest in our company. And operator, please open the lines for questions.

[Operator]

[Operator Instructions] And your first question comes from the line of William Woods from Bernstein.

[William Woods, Sanford C. Bernstein]

Good luck, Natalie. So my first question is on the current state of the Dutch and Belgium strikes. What impact should you see in Q2? Should it be lower than Q1? And how would it trend throughout the year?

And then the second one is just on the U.S. In terms of the Food Lion refurbishments, why are you refurbishing these stores? Are they underperforming? And what exactly are you doing in those stores?

[Natalie Knight, CFO and Member of the Management Board]

Why don't I take, William, that first question on Food Lion, and then I'll have -- Frans will talk about the Netherlands and Delhaize strikes because I think that's one of interest for a lot of folks.

But on Food Lion, as you know, this is our biggest brand in the U.S. We've had 42 quarters of consecutive comp store sales growth and very strong market share gains. This is a brand we're very proud of. And we think that one of the key ingredients to the success was that we did take the big effort to go through and remodel the whole fleet with a very consistent design and feel that as we came into a period of COVID and demographic improvements, we really were able to meet the right market conditions with a good format.

And as we go forward, we need to continue to do the same thing. So we're now moving into a period where we're looking at the fleet also in different tranches. And our big focus right now is how do we make the store more omnichannel and how do we increase the sustainability impact so people really feel that fresh and affordable and simple way of shopping, which is part of the core of how we approach the market for Food Lion.

[Frans Muller, President, CEO and Chairman of Management Board]

And on the first question, William, the effect of the Belgium strikes and what we should expect for the year going on. We are very happy that at the moment, we have all our 128 stores opened and that we can, again, give customers the full assortment and service of our people and in stores. And we see also, therefore, that sales levels are getting back to pre-strike levels. And people are very excited about it to make sure that customers get, again, the best experience they use from us. That's the first thing. We think that the effect of the strikes are, for a big part, behind us and that the effects of the Belgium business model change will moderate further over the year.

[William Woods, Sanford C. Bernstein]

And any comment on the Dutch strikes?

[Frans Muller, President, CEO and Chairman of Management Board]

On the Dutch strikes, we reached an agreement with our social partners yesterday, and I'm very happy that we have a mutually agreed negotiation result. All people are back to work and are doing those things, which they love the most, namely servicing customers and making sure that our stores are fully stocked. Our stores are back to normal from a stock level perspective. And we also see that we did not lose customers over the strike from pre-strike levels. So we are back to normal, but of course, this will have also cost sales and profitability. But we come back to that later. We're now first focus on getting the stores back to normal, and we are very positive about that.

[Operator]

And your next question comes from the line of Nick Coulter from Citi.

[Nick Coulter, Citigroup]

Of course, best of luck to Natalie. So two, if I may, please. Firstly, on the U.S., would it be possible to get a sense of how much availability improved or how much availability drove your U.S. comps in the quarter, please? And then how much there is to go for from availability as you progress through the balance of the year?

And then secondly, if I may, on Belgium, could you talk about the future shape of Delhaize Belgium, please? What order of margin should we hope for? Or I guess what sort of margins does your franchise operation in Belgium deliver at present? And then I guess also, we should probably expect a slightly lower level of reported sales as you move to franchise as well.

[Frans Muller, President, CEO and Chairman of Management Board]

Yes. Thank you very much, Nick. An important reason for a strong result of the U.S. business in the first quarter was the positive decision we took a couple of years ago to take back the supply chain in our own control. And this self-distributing character of the supply chain along the whole East Coast is bringing us a lot at the moment. It's bringing us more shelf availability, which we see. I think in the results coming in now, it's also bringing us more transparency on our relationship with our vendors. And the third thing is it will have, over time, also a positive effect on our working capital.

The increased availability, we see now already, and it's still growing. And that is a positive thing. We also see, for the remainder of the year, a growing availability. And we are in the early -- the high 80s and early 90s now, but we see that growing week by week. So I'm quite positive, and it's also underlying our confidence that, that decision has been the right one to take that supply chain in our own control, and of course, we didn't have the most easiest moment during COVID to start that operation, but it has been a very good decision, and we see now the expectations coming through.

[Nick Coulter, Citigroup]

And that high 80s, early 90s, where was that last year just to get a sense of the direction of travel?

[Frans Muller, President, CEO and Chairman of Management Board]

Regard -- it depends very much by category, Nick. It's difficult to say that, but to give you a number, 5% lower.

[Natalie Knight, CFO and Member of the Management Board]

And then on your question about Delhaize, and I think it was around, hey, what's our medium-term view in terms of sales and margin. I think the call-outs on sales are obviously, over time, we'll have lower sales than we've had historically because we'll have things going through the affiliate or franchise model, but we expect them to be able to grow faster. And in the medium term, we expect our margins to be much closer to the group average.

[Operator]

And your next question comes from the line of Izabel Dobreva from MS.

[Izabel Dobreva, Morgan Stanley]

I have two questions. The first one is on the U.S. pricing environment. Could you comment on how you're seeing price action and competition evolve so far along your exposures and also how you see the levels of promotional activity? I would be particularly interested in any comment you can make around who is funding the promotional activity between retailers versus suppliers?

And then my second question is, could you update us on your energy cost guidance by quarter for the rest of the year? And also thinking beyond the next 12 months, you mentioned that the energy cost is now 3x what it used to be. So how would you expect that headwind to recover in 2024 once we converge to the spot prices and the hedges roll off?

[Frans Muller, President, CEO and Chairman of Management Board]

Thank you, Izabel, for those two questions. Natalie will answer the second one. Let me say a few things about the pricing environment in the U.S. I would characterize this as rational. And we said this in earlier quarters, but I think it's the same story so far, rational pricing there. And what we see is that when customers are confronted with the smaller wallet that they stay in our stores and buy more of private label. That's what we see also going up our private label sales in our stores. So a rational pricing environment on the promotion levels as we still are cruising with the levels of inflation, cruising in most of our brands with negative volumes, which is not good for us, and it's also not good for the vendors. We see that in our negotiations and discussions and conversation with vendors, we see now more and more joint plans to increase volumes, which is, for a lot of vendors, now also a top priority. So we see more promo and trade funds coming into our system. So more support on the promotional side.

[Natalie Knight, CFO and Member of the Management Board]

And as far as the synergy costs are concerned, Izabel, I think there, if we look at this year, I mean, maybe just starting with some high-level comments, we are at a place now where we're largely locked for our deregulated market. So I think we have good insight in terms of how those costs are likely to develop for the rest of this year. And we see there's a difference in the first half and the second half that just has to do with the timing of when we started to see those prices increase originally in last year.

So there will be -- continue to be pretty high in the second quarter. It will be a little less as we go into the second half of the year. And when we look out to 2024, because I think that was also part of the question, there, the comparisons do become a bit easier for us. But I think it's a little too early for us to give you guidance in terms of how we expect that to flow through fully in the P&L.

[Operator]

And your next question comes from the line of Robert Vos from ABN Amro-ODDO BHF.

[Robert Jan Vos, ABN AMRO]

First, my first question is on the margin in Europe. I think, Natalie, you said that the combined effect of escalated energy costs and strike is around 90 to 100 basis points. Is it fair to assume that 20 to 30 basis points out of that is related to the strikes in Belgium? And related to this, should we assume a similar effect from the strikes in the Netherlands so far in the second quarter? That is my first question.

And my second quarter -- second question is about Global Support Office costs. It was actually quite a bit lower than expected, the EUR 13 million. Is that purely related to in-quarter interest rate changes? And if you exclude for those, the EUR 30 million, 3-0, was also quite low. Is that a good number as a run rate for the coming quarters?

[Natalie Knight, CFO and Member of the Management Board]

So in terms of the two questions -- thanks for those -- on European margin, let's make clear on that. The comments that I gave were related to what was the impact of energy and strike costs together related to Belgium, and I -- and said that was about 1 point in terms of in the European margin. If we look at the total European margin and we take those -- we take the positives that we got from pensions in that number, all of that together, we still had a positive underlying margin improvement when we look at the core business.

What I said about the outlook for Q2 is that we expect that impact to be pretty similar. We didn't make any comments about the Dutch number, and I don't think that's something that you should see as a significant driver. It's certainly not of the same magnitude as how we've looked at Delhaize. This is more of a onetime very short impact for us in the business.

The second question you had was on GSO cost, and you have suspected correctly that the change in that number is related to interest rates and the impact it has on our insurance reserves. In terms of the outlook for the rest of the year, I think the number probably is a good base number, but it's obviously dependent on what happens with interest rates. So if we were to see it move one way or the other there, that could impact that number going forward.

[Operator]

And your next question comes from the line of Sreedhar Mahamkali from UBS.

[Sreedhar Mahamkali, UBS]

Natalie, also, all the best in the new role. A couple of questions then, please. Firstly, I guess, Frans, any color at all on current trading into Q2, given clearly, in the U.S., Q1 was impacted by weather and calendar impact and now we also have to factor in the SNAP moderation that you referred to? So anything you can say just in terms of where we are directionally in terms of U.S. and Europe, current trading will be super helpful.

And second one is despite clearly some unexpected -- or maybe you were expecting already anywhere in your guidance. On the margins, you're reiterating at least focused on the group operating margins and the shape of it clearly suggests U.S. needs to be lifting a bit more weight. I can see the $100 million sort of cost savings that you said would come through some supply chain in-sourcing are clearly coming through. What are the other drivers that give you confidence in the U.S. margins being more robust through the year in the context of potentially using top line? So confidence around the U.S. margins is the second question.

[Frans Muller, President, CEO and Chairman of Management Board]

Thank you, Sreedhar. A couple of questions with a level of detailing you request from us, which is a little bit difficult not having these kind of crystal balls quarter-by-quarter on category margins and all these kind of things. But let me give you a little bit of color. We are confident that we are very well positioned in the U.S. We have strong brands. We have strong positions there. We have a backup of a stronger supply chain. We have well-developing plans on our private label proposition. We have teams on the ground and confident and proud about the results.

So I'm confident that we will have a strong base now also to make a strong impact with customers with our new loyalty, digital products, and look at the e-commerce growth. We grew 12% in the U.S. We've got 250,000 new customers in the first quarter. So a number of those kind of things we invested in, private label, network, supply chain, digital, loyalty, I think, are paying off. So current trading is positive, is good. I can't look into the future that much. We'll see what -- how we deal with the SNAP benefits, which went down, but that's, of course, a level-playing-field event. But I'm confident with our U.S. teams, confident with the leadership. I was there last week, and talking to our new leader, JJ Fleeman, and his team. They sorted. They organized and take the next steps there, so I think -- based on the very strong base, which Kevin Holt left behind.

On the margins, yes, we expect that we have a positive result from our supply chain initiatives. As I mentioned earlier, it's not the greatest time to change your supply chain in COVID time. So that's why I said earlier, we might have a year delay in the total development there. But we will have a positive contribution on availability and also on working capital. So I think those things we see coming through second half this year, first half next year, too.

Is there anything else to add from your side, Natalie, on this topic?

[Natalie Knight, CFO and Member of the Management Board]

No. I think the most important thing I would say, Sreedhar, is if you look at the margin, we do think of it very holistically. We have a big commitment to the 4% number that we've given -- at least 4% for the group. And that is kind of the beauty of our business model is that you are sometimes going to have one region that is able to pitch in more when times are more difficult in other markets, and that's something that's really paid off for us in the first quarter. As we go through the year, there may be things that move pluses or minuses in either region. Those are things that we believe are very much in line with us being able to achieve the 4% for the full year or at least that number for our margin in 2023.

[Frans Muller, President, CEO and Chairman of Management Board]

And it's not by chance. We have our savings program, the EUR 1 billion in the total Accelerate chapter. So that's also important for us to fund that 4%, too.

[Sreedhar Mahamkali, UBS]

Got it. Just a very brief follow-up. I think does the shape then mean you plan for some more potential impact in Q2 in Europe, as Natalie mentioned. And I'm just questioning if you've got any more disruption to maybe bake into the guidance at the moment in Europe, or that's sort of how you see that energy starts to lap second half should be better margin in any case in Europe.

[Natalie Knight, CFO and Member of the Management Board]

I think the only thing I would say on that one, Sreedhar, is that an important item to mention is, obviously, as we look at -- I talked about energy and how that will play through the rest of the year continue to be a drag. And when we look at the Delhaize impact, that's something where we are, I think, getting stronger in the position of that business every day. It's great that the stores are open and people are really going back to the stores, but it is also something we will have -- continue to have transition costs this year as we move to that affiliate model. So that's something that plays through. But it's certainly more first half than it is second half when we look at the Belgium impact.

[Frans Muller, President, CEO and Chairman of Management Board]

Yes. And what Natalie already said earlier that the Dutch disruptions is in no way comparable to what we saw in Belgium. At both elements, Belgium and the Dutch elements are part of our guidance for the full year.

[Operator]

And our next question comes from the line of Andrew Gwynn from BNP Paribas.

[Andrew Gwynn, BNP Paribas]

I was going to touch on Sreedhar's question, but I think you've kind of answered it, but I was just wondering if there's anything else that you wanted to flag both currency and so forth as to why the caution on the EPS forecast. So that's the first question.

And then the second one comes back to the U.S. If I look for your history, this is one of the strongest profit performance in certainly in U.S. dollar that we've seen really outside of COVID. So a very good period, a very good Q1. How long do you think it can last? I know the U.S. market is very rational, arguably too much so. But given the headwind from stamp and so forth, should we expect continued strength in the U.S.? Or is it just sort of feel-your-way quarter-to-quarter?

[Natalie Knight, CFO and Member of the Management Board]

Let me start with the question on EPS. I think this is one that's very easy, which is if we look at the underlying trends for the full year, we expect them to be right in line with what we've seen for the first quarter. Really, the only difference in terms of why we get to flattish EPS for the full year is based on our expected move, particularly in the U.S. dollar, but also interest rates and how they flow through our P&L.

On the U.S. number in terms of how things are moving on that side, I think this is something where we agree with you. We're very pleased with the performance of that business. There are some things when we look at -- remember the comparison to last year is favorable for us in the U.S. We were having some supply chain challenges as we flagged last year. So that's something that helps. As we go forward, there are definitely some clouds in the macro economy everywhere in the world. So those will be things that challenge us. But we continue to believe in the strength of the brand, and the performance we're doing there is we've highlighted the L&D improvements in the supply chain, which have been sizable for us this quarter.

And as we look at the business going forward, it's something we believe -- maybe we've talked a little bit less about what we're doing in terms of being very focused on the CDP for our consumers, where we're introducing more in terms of our own brand sales have gone up in the quarter. I think there has been a question earlier about a little bit the promotional environment, which, yes, it's starting to move, but it's still very rational.

So those are things that bid well for our business. But nothing is a straight line. Let's see how things move forward in the U.S. I think this is a business that continues to be strong, and we're very -- I'm very happy to have it in our portfolio, especially in these times in Europe, where it's allowed us to make some good strategic choices in terms of how we best serve the market in the medium term going forward.

[Frans Muller, President, CEO and Chairman of Management Board]

At the moment, we all say, live with the full year growth guidance, and the year is still young.

[Natalie Knight, CFO and Member of the Management Board]

Absolutely agree.

[Andrew Gwynn, BNP Paribas]

Indeed, and I respect that, certainly. But just back on the U.S. margin, again, sort of very, very exceptional performance. Touching on a point you've highlighted there, are you managing this more as a portfolio? So as you know there may be weakness in Europe, you're kind of pushing the U.S. business a little bit harder to compensate. Is that how we should think about that quarter-to-quarter? Or is it really not that easy?

[Frans Muller, President, CEO and Chairman of Management Board]

Yes. Like the earlier question was on the rational pricing, you can assume that we would like to stay competitive everywhere where we're operating. So I don't know what you try to tell me or insinuate whatsoever, but we are not lifting artificially rates in the U.S. at the detriment of competitiveness. That is not how we operate.

We paid that price in 2010, '11, '12 with Food Lion, where we were priced too high, and we had to [make] big correction in the end and successful correction. But we are, of course, for us important that we price competitively compared to the relevant competitors in the areas where we, at the moment, competing and, in many of the areas, are winning at the same time. So that would be my answer there. But again, pleased with the results. The U.S. team did a great job in the first quarter.

[Andrew Gwynn, BNP Paribas]

That's it. Best of luck, Natalie.

[Natalie Knight, CFO and Member of the Management Board]

Thank you.

[Operator]

And your next question comes from the line of Fernand de Boer from Degroof Petercam.

[Fernand de Boer, Degroof Petercam]

It's Fernand de Boer from Petercam. Two questions from my side. One, in your introduction, you mentioned that the last 12 stores -- Stop & Shop stores you remodeled or refurbished actually performed much better. So what did you do there differently? That's the first question.

And then the second one is on the cash flow guide, this EUR 2 billion. Does that also include the settlement with the Belgium tax authorities?

[Frans Muller, President, CEO and Chairman of Management Board]

Natalie will come back to the second question. Let me take the first one. We are happy with the positive trend, which we see in the Stop & Shop remodelings. We're now roughly at the 170 mark store. We have 400 stores in total. So we're reaching the 50% coverage. And yes, I think what is logical that we learned from remodelings and not only on the CapEx and where to invest but also how customers react, how we promote the openings and the grand openings and these kind of things.

But especially, for example, in a number of stores in the New York area, we did a lot of things on the ethnic assortment, and we were able to attract a lot of new customers in the Latin American/Hispanic group of people but also in the African-American communities. And I think those things we learned. And what we've tried to do, of course, to transfer and plant those learnings also in the next remodeling. So I think the team got more and more trained and learned things also how to merchandise things in stores in a better way, where to invest in fresh and service areas. I think I would say it's a learning curve. And this how we'd like to see the uptick in the last 12 stores doing better than our original plan.

[Natalie Knight, CFO and Member of the Management Board]

And I'll take the question on the cash flow guidance. For those of you who might not have seen it, what we had today in our press release was that we have received word from the Belgian tax authorities that a contested issue we had regarding the valuation of our underlying share business in the U.S. So this was related back to the merger in 2016, and it was a claim from 2018. This was actually -- has been resolved, and it is something where we are expecting them to repay the full amount.

However, it has also come with discretionary timing options. So from an accounting point of view, we have reclassified the receivable as a short-term receivable. But from a cash flow perspective, we'll update our guidance in the regularly quarter -- the regular quarterly cadence when we've actually received the cash payment. And this is an Ahold Delhaize item only. As you know, it's not a part of our core operations, but it is something we've been monitoring closely for the last couple of years.

[Fernand de Boer, Degroof Petercam]

Okay. Maybe one last question regarding Belgium. Is this now because you had quite some restructuring charges in the first quarter? Is the conversion to the franchise operation, is that now fully covered with this restructuring charge? Or could we expect more in the second half?

[Frans Muller, President, CEO and Chairman of Management Board]

We cannot say that, Fernand, at the moment. We are in the consultation phase, and we are very happy that all the stores are opening again. And I think -- let's talk about it in the next quarter. It's difficult to predict. But I think it's fair to say that, that type of transition costs will also moderate over the year.

[Natalie Knight, CFO and Member of the Management Board]

And I'd also add from my point of view that the below-the-line costs, if we look at them on a segment level and those are disclosed in the press release, are actually quite moderate. So I think you're probably looking at the total number, which also includes our Accelerate activities also in the U.S. So I don't think this is a number that should have anybody too nervous.

[Fernand de Boer, Degroof Petercam]

Okay. And success at Stellantis.

[Natalie Knight, CFO and Member of the Management Board]

Thank you.

[Operator]

As there are no further questions, I will now hand the call back to JP.

[JP O’Meara]

So thank you, operator, and thank you all for your participation today. We look forward to seeing you also on the road too over the next couple of weeks. And if we have missed anything or anything you want to follow up on, please reach out to the Investor Relations team, and have a great day.

[Operator]

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.