Axfood AB
STO:AXFO
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Axfood AB
Earnings Call Analysis
Q2-2024 Analysis
Axfood AB
During the second quarter of 2024, Axfood’s net sales increased by 1.2%, despite a challenging market environment characterized by low inflation and a negative calendar effect of -1.2%. This period saw a market growth of approximately 2.2%, highlighting the company's resilience and ability to outperform market expectations, driven by a strong inflow of customers and continued volume growth.
Willys, one of Axfood's key retail chains, reported a growth rate of 2.6%, exceeding the market average. This growth is particularly notable given the high comparison figures from previous periods. The operating profit in this segment increased marginally to SEK 509 million, with an operating margin of 4.5%. This positive result was attributed to effective cost control and growth in like-for-like sales, although it was somewhat offset by higher staff and rental costs.
Dagab, Axfood's logistics and wholesale operations, faced several challenges during the quarter. Net sales for Dagab grew by just 0.8%, hindered by low inflation, a negative calendar effect, and softer sales to external customers. Operational disruptions, which added SEK 40 million in costs, and the ongoing restructuring of logistics further impacted Dagab's performance. These factors contributed to a decline in group operating profit.
Axfood's e-commerce sector experienced a robust growth of 7.4%, outperforming the market. The share of consumer sales from e-commerce rose to approximately 5.2%, indicating the company's strong presence and competitive advantage in the online retail space.
Axfood reported a slight increase in net debt by the end of the second quarter, with a net debt ratio excluding IFRS 16 at 0.1, 0.2 lower than the same period last year. The equity ratio increased to 21.1%, reflecting a stronger financial position. Total investments for the first half of the year amounted to SEK 740 million. The company continued to focus on expanding and modernizing its logistics network, particularly with significant investments in the logistics centers in Balsta and Backa.
The new logistical structure, particularly the facility in Balsta, is expected to significantly improve productivity and competitiveness. However, the transition has incurred higher-than-expected costs due to operational disruptions and the need for additional staffing and transport during the transition period. These costs are anticipated to decrease in the upcoming quarters as the new logistics operations become fully functional.
Axfood announced the acquisition of the City Gross hypermarket chain. This strategic move, pending regulatory approval, aims to enhance Axfood's market presence in the hypermarket segment. The acquisition is expected to deliver long-term profitable growth by improving operations and customer offerings, drawing on Axfood's extensive experience with other retail chains like Willys and Hemkop.
Axfood has made notable progress in sustainability, with a sharp focus on reducing CO2 emissions. The company's own transport emissions have halved since 2021, and it is on track to transition to renewable fuels or electricity five years ahead of schedule. Additionally, Axfood has reapplied to set science-based targets in alignment with the Paris Agreement, reaffirming its commitment to sustainability.
Despite the challenges faced in the second quarter, Axfood remains confident in its investments and strategic initiatives. The company continues to anticipate profitable growth and improved competitiveness. As part of a planned leadership transition, CEO Klas Balkow will step down, with Simone Margulies set to take over. This leadership change is expected to drive Axfood into its next phase of growth and development.
The second quarter of 2024 demonstrated Axfood's strength in maintaining market growth and improving operational efficiencies amidst a challenging environment. Strategic investments in logistics and sustainability, along with the acquisition of City Gross, position Axfood well for future growth. The upcoming leadership transition marks a new chapter for the company, with a continued focus on delivering affordable, sustainable food to its customers.
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Welcome to the Axfood Q2 2024 Report Presentation. [Operator Instructions]
Now I will hand the conference over to speakers, CEO, Klas Balkow; and CFO, Anders Lexmon. Please go ahead.
Thank you and good morning, everyone, and thank you also from our side to join today's call. As you heard, Anders Lexmon is with me here today to present the interim report for the second quarter of 2024. And in the Investors section of our website, you will find the presentation material for today's call and a recording will also be made available afterwards.
So with that, I would like to get started, and please turn to Page #2. Today's agenda is as follows. First, we'll have a brief market overview. And then I will give you a review of our quarterly performance. And after that, Anders will take you through our financials.
And following Anders' part, I will talk about our progress we are making with some of our strategic initiatives and investments for the future. And of course, this will also include logistics, but also our announced acquisition of the hypermarket concept, City Gross. And finally, we'll have a brief summary to conclude the presentation before we open up for questions.
So with that, we are now on Page #3. But let's go directly to Page #4 and take a look at the development during the quarter. Market growth amounted to approximately 2.2% in the second quarter, which is a lower level than we've seen before. The calendar effect was, however, negative at minus 1.2%, basically a reversal from the positive Easter effect that supported market growth in the first quarter. Inflation was low during the quarter and amounted to approximately 1.1% according to Statistics Sweden.
A strong focus on price value continues to dominate the market dynamics. The fact that households now have a slightly more optimistic outlook following the sharp drop in inflation has not had any major impact on consumption patterns. And clearly, it's still a very intense competitive environment out there. With that said, volumes in the food retail market are continuing to recover. This is evident when taking the price and calendar effect into account, which results in a volume growth of 2.3%.
With that, go to Page #5. Now, going into this year, we were mindful that we would be operating in an environment with low inflation, cost pressure and intense competition. And against this backdrop, we knew that relevant offerings and price positions are more important than ever, hence, our dedication to these areas in the last 6 months. And despite exceptionally high comparison figures, we once again outgrew the market in this quarter.
Retail sales grew by 2.6%, driven by continued volume growth with a strong inflow of customers. Over a 2-year period, growth amounted to almost 20%, significantly higher than the rate of the market, which was around 11%. It is clear that our concept are strengthening their market positions, which have been significantly improved in recent years and that customers appreciate what we are offering.
Now with that, turn to Page #6. At e-commerce, our sales increased 7.4%, which again was higher than the market. And our share of consumer sales from e-commerce was approximately 5.2%, roughly 1 percent point higher than the penetration of the market. So we are clearly overrepresented on online, capturing more than our fair share of this channel.
So we're now moving on to Page #7. So let's look into some of our key ratios. And consolidated net sales for Axfood grew 1.2% during the quarter. Willys posted solid growth. And Hemkop's like-for-like development was strong. However, the development for Dagab held back total growth, largely due to softer sales to external customers, but also due to a negative calendar effect also in Dagab of 1.1%. That will be reversed in the third quarter.
And with that, go to Page #8. Now looking at our profit, in total, group reported an adjusted operating profit amounted to SEK 836 million and the margin was 4.0%. As a reminder, last year, we disclosed cost affecting comparability related to the transition to the new logistics structure. Although the transition is still ongoing, related costs are no longer deemed as affecting comparability as parallel warehouse operations are being phased out gradually.
However, our transition costs have been somewhat higher than we initially anticipated. While the quarterly development in the retail chains was solid with positive like-for-like growth, the decline in profit was mainly due to a negative development in Dagab due to softer sales, transition costs and costs related to operational disruptions of around SEK 40 million.
In the quarter, we also incurred acquisition-related costs of SEK 26 million for City Gross acquisition. And in addition, in May, we were affected by the temporary operational disruptions in the stores payment system. And this is estimated to have an impact profits negatively by SEK 20 million. And perhaps it's needless to say we are not pleased with the profit development in Dagab for the quarter. But we had a lot of cost and headwinds, as you've heard and the extraordinary items partly explains it. And I'll talk more about the moving parts here later on in the presentation.
But let's now move on to our segments and turning to Page #9 and we're going to Willys. Willys growth of 2.6% was higher than the market, which is a very strong performance given the exceptionally high comparison figures. Compared with the same period 2 years ago, Willys has grown more than twice as much as a market.
And operating profit in the segment increased slightly to SEK 509 million, corresponding to an operating margin of 4.5%. The profit development was primarily attributable to growth in like-for-like sales and effective cost control, but was negatively impacted by higher staff costs and increased rental levels.
And we are now on Slide #10. And I want to emphasize, Willys ambition to offer Sweden's cheapest bag of groceries is key. And during the quarter, Willys secured its price position. Willys growth compared to the market shows that its strategy is working. This is also confirmed by customer service, with high levels of customer satisfaction. And we also see strong loyalty among existing customers.
As an example, for quite some time now, Willys has been Sweden's most recommended food retail chain and the gap to its main competitors is significant. And if you look at customer willingness to recommend what we call a Net Promoter Score is obviously a way of measuring customer satisfaction. However, we also measure customer satisfaction index. And our service show a high level for Willys in line with the main competitor despite very different offerings and significantly higher than its second main competitor.
With that, let's turn page and we are now on Page #11 and we'll go into Hemkop. And Hemkop hence once again posted strong growth in like-for-like sales of 4.6% during the quarter, driven by clearly higher volumes. Total retail sales growth was 2.5%. And as a reminder, 3 large stores left the chain on February 1, which mainly explains the difference in total and like-for-like growth and net sales increased by 5.2%.
While the development for Hemkop banner was strong, Tempo delivered a softer performance as a result of the continued challenging market climate for smaller store formats. And operating profit amounted to SEK 87 million and the operating margin was 4.4%. The significant increase in operating profit was primarily attributable to the strong like-for-like growth. The quarter was also characterized by improvements to the operational efficiencies and effective cost controls.
And with that, turn to next page, Page #12. And also in Hemkop, it's continuing its work on its assortment, price [Technical Difficulty] and store modernizations. And customer service demonstrates the progress the chain has been making in the last couple of years in terms of appeal. Customer satisfaction has clearly improved. And when we analyze the development compared to its closest competitors, we see a clear effect.
Hemkop is the only one with a positive trend. This has resulted in a narrowed gap compared to 2 of its closest competitors and a widened gap in relation to the third. And obviously, Hemkop continues its journey to strengthening the profile. And this work has paid off, which is why the chain has been so well in the market for a long time now.
And let's move on to Page #13 and we'll go into Snabbgross. The cafe and restaurant market is facing a softer market as many consumers are prioritizing other types of spending than eating out. This, of course, has had a impact on Snabbgross development. Sales during the quarter increased 1.9% in total and 1.5% on a like-for-like basis.
And positively, the number of customers continued to increase. And in addition, the trend in consumer sales through Snabbgross Club continues also to be strong. Operating profit amounted to SEK 84 million, corresponding to an operating margin of 5.5%. The profit development was mainly impacted by growth in like-for-like sales and increased costs primarily related to staff and higher rental levels.
And with that, let's go to Page #14 and we look into Dagab. And as I mentioned, the decline in profit for the group was mainly explained by a weak development in Dagab in this quarter. Dagab's net sales increased by 0.8% on the back of low inflation, a negative calendar effect and softer sales to external customers, including the smaller store format. The sales development was clearly not enough to offset the general cost inflation.
But in addition, the muted sales growth, Dagab experienced higher costs related to the ramp up of our new logistical structure and also Dagab incurred cost of SEK 40 million related to operational disruptions. And I will talk more about this when we come down to the strategy review.
But now let's turn to Page #15 and it's time for Anders to walk you through our financial development. So please go to next page and we will have now Page #16. And Anders, please go ahead.
Thank you, Klas. During the first half of the year, net sales for the group increased by 3.1% to approximately SEK 41 billion. Retail sales increased by 4.7% which was higher than the food retail market in total where growth amounted to 4.2%. Operating profit, excluding items affecting comparability decreased with 2.3% to just over SEK 1.6 billion.
Like-for-like growth and effective cost control in the retail chains was offset by higher costs associated with the restructuring of logistics as well as increased costs related to personnel and higher rents. The operating margin, excluding items affecting comparability, was slightly lower and amounted to 4.0%.
Let's turn page to Page #17. During the second quarter, cash flow was minus SEK 174 million and compared with last year, SEK 165 million lower, mainly due to negative cash flow from net working capital. The positive calendar effect in Q1 from Easter was reversed in Q2. And furthermore, we also had a negative calendar effect in Q2 related to the number of payment days.
The negative cash flow from investments activities of SEK 427 million was significantly lower than last year as we now have a lower pace in automation investments. Investments in our retail operation was, however, higher in Q2 compared to last year due to more store establishments and the investments in Joint Group functions was in line with last year.
During the first 6 months, we strengthened our cash flow from both due to a stronger operating cash flow and a lower investment. At the end of the second quarter, we utilized approximately SEK 0.7 billion of our credit facilities, SEK 0.4 billion less than the second quarter last year.
Then turn page to Page #18. We also, in the second quarter, strengthened our financial position compared to last year. But compared to Q1, we saw a slight increase in net debt due to a lower cash position. The net debt ratio, excluding IFRS 16, amounted to 0.1, which was 0.2 lower than a year ago. The equity ratio at the end of the second quarter amounted to 21.1%, 1.2% higher than the second quarter last year.
And total investments, excluding leasehold for the first half year amounted to SEK 740 million, SEK 394 million lower compared to last year. And again, we now see a lower pace in investment related to the logistics center in Balsta. Investments in relation to net sales continue to come down and amounted to 1.7% in the first half year.
And then please go to Page #19. Despite the negative net working capital effect in the second quarter, we have a positive development of rolling 12 months net working capital, both in absolute and relative terms. At the end of the quarter, the net working capital compared to sales was minus 3.5%, the decrease with 0.3 percentage points compared to year-end 2023.
We saw improvements in trades payable as well as in trade receivables. The positive development in current liabilities contributes to a lower level of capital employed, which, in combination with an increase in profit, improves the return on capital employed.
So to summarize, we leave the second quarter with a strong financial position. And thereby, Klas, I hand over to you again.
Thank you, Anders. And we're now on Page 20. But let's turn now to Page #21 as I would like to give you some more color on our progress with the new logistical structure. Let me start by saying our ongoing efforts to establish a new logistical structure are extensive. We continue to make significant and are confident that with this transition to a new logistic platform, we will significantly improve our productivity and competitiveness in the market.
And in the last months, we have gradually scaled up our frozen food volumes at the new logistics center in Balsta. This means that we now have operations up and running in all temperature zones as dry refrigerated volumes have been fully transferred. We have come a long way in the ramp-up of the facility. And in addition, we are now also running early tests with the e-com deliveries.
While Balsta is obviously the largest investments in our new logistical structure, we're also strengthening our operations in the southern part of Sweden. And notably, the expansion of a new automated high bay warehouse in Backa, Gothenburg, intensified during the quarter. These investments will significantly improve warehouse capacity and efficiencies to meet the significant volume growth we have seen in recent years.
And lastly, in our fruit and vegetable warehouse in Landskrona, work is ongoing to start to realize the efficiencies after the automation solution was installed in the first quarter this year. This initiative will also contribute to our new logistical structure being highly efficient.
Let's now go to Page #22. But while we have made progress with the logistics transition in the quarter, we also faced some certain headwinds. First, although we have come a long way, we are a couple of months behind in the transition. This means that we are not operating as efficiently as we want to as we still, to some extent, are running double warehouse operations.
As communicated last fall, we knew we will be delayed and have some additional costs. And secondly, given our volumes in recent years, we have during the transition identified a need to rebalance volumes between warehouses to optimize logistical flows. A month ago or so we communicated that we decided to keep our existing warehouse in Orebro to handle convenience trade volumes there instead in Balsta.
In addition, during the quarter, we have moved Snabbgross volumes to Hassleholm from Backa, which is a warehouse that is better suited to handle Snabbgross type of assortment as well as to free up capacity in the Backa warehouse. Work on optimizing logistical flows is always ongoing, but these 2 initiatives are quite large in scale.
And while in the transition itself and initiatives to balance logistical flows drives extra cost due to inefficiencies, we also, in the quarter, had higher costs associated with operational disruptions. More specifically, we experienced problems while ramping up our frozen food volumes in Balsta. But I'm now glad to be able to say that these disruptions we noted in May and partly April is now sold. And during the last few weeks, we are back on track.
And overall, the restructuring of logistical drives higher cost in the short term, both from higher-than-usual levels of staffing, but also clearly from extra transports. We do this priority to maintain service levels because we cannot optimize, as you know, and compromise on the customer meetings in the stores. And all this said, our expectations remain unchanged regarding the long-term upside with the new logistical structure, i.e., in terms of annual efficiency improvements, cost savings and improved competitiveness. And we are now in a better position to be on track with the restructuring and to accelerate our efforts with gradual adjustments in the second half of the year.
With that, now let's turn to Page #23. And on June 11, we signed an agreement to acquire the City Gross hypermarket chain in which we already have joint control through a minority stake. We are delighted to have reached this agreement and now await the review of the Swedish competitive authority as well as the EU Commission. We believe strongly in this acquisition and we believe strongly in City Gross. The hypermarket segment is growing and is attractive to the Swedish consumers. As 2 players have almost 90% share in this segment, we are confident that there is a demand for a relevant and strong third concept.
As owners, we will invest in developing in the concept, streamlining its operations and improve customer offerings to create a long-term profitable growth. This is something we have both experience and knowledge of, thanks to the extensive work and development we have carried out over the years in both Willys and Hemkop. And we look forward to working to strengthen the chain's position and more clearly challenge the major players in the growing hypermarket segment.
And moving now to Page #24. Last quarter, we talked about our efforts to accelerate the use of renewable fuel. As you may know, our ambition here entails that we are over a 2-year period with transition to using renewable fuel or electricity in our own and procured transports, which will be 5 years ahead of plan. Following up on the clear progress we made in the first quarter, I can confirm that we are continuing to make progress also in the second quarter.
Our CO2 emissions from our own transports amounted to 8.8 kilos per tonne of goods transported. This represents a sequential decline from the first quarter. And if we put in perspective and look back a couple of years to 2021, it represents a steep 48% decrease. In other words, emissions from our own transports have halved during the relatively short period. And I also want to inform that we, during the quarter, made a decision to reapply to set science based targets in line with the Paris Agreement through the Science Based Targets initiative.
And we're now on Page 25. Our outlook for the year is unchanged. And it covers investments in new store establishments. And for new establishments, we opened up 4 new stores in the quarter, of which 2 Willys, one Willys and one Snabbgross. Note that one of the new Willys stores was a reestablishment which replaced an existing smaller store in the same town.
With that, go to Page #26. And let me summarize. We summarized the quarter and which we once again outgrew the market despite exceptionally high comparison figures and saw an increased volume from continued high inflow of customers. We made clear progress with our new logistical structure, however, faced some headwinds in the quarter, which negatively impacted the profit development.
We are confident in our many investments that will create a solid platform to improve the competitiveness in the future. And we also announced an important acquisition, City Gross, which gives us additional presence, growth opportunities and increased competition.
And finally, this is my 30th and last earnings call as President and CEO of Axfood. I must say that I'm really proud of the strong culture and broad expertise in the group with employees who are really passionate about our journey to lead in affordable, good and sustainable food. To step down from leading this fantastic company is for sure with mixed feelings.
But I also have to say, I am very pleased with the Board of Directors choice of my successor. And it's with pleasure that I a month from now, will hand over the leadership to Simone Margulies, who will lead Axfood into the next chapter.
With those final remarks, that concludes today's presentation. And please now turn to Page 27. And I hand over to the operator to open up the line for questions.
[Operator Instructions] The next question comes from Fredrik Ivarsson from ABG.
Can I start with a question on general consumer behavior? Curious here, if you've seen any changes in, for instance, basket mix during the last quarters? I guess I know that the private label in Willys was flat versus last year and level of organic also flattish in Willys. But if you made any other observations that you can share with us that would be helpful.
Overall, no. It's generally -- as we noted, we see the light of that the market volume is coming back from a very soft 2023 in the market. And there is some -- obviously, some more positive signals in terms of the economy and the interest and so forth. But we've seen any difference in the behaviors in the stores in terms of consumers' patterns and price value focus, et cetera.
Okay. Interesting. Second one, a question on Dagab maybe and how we should think about the second half of this year to start? I mean you've been previously quite optimistic in terms of reaping efficiency gains already from Q3 and onwards. And now it seems like you have to sort of operate, I guess, with higher cost levels than you wished for. So what's the net effect on the efficiency gains on the one hand side and the temporary higher cost level on the other in Q3, Q4?
Yes. And I think as we try now to explain and how we look at it, the 3 areas basically. We -- as you've seen, we've had a very soft sales in Dagab and obviously that has impacted. But then we have the disruptions that we have pointed out and -- to you how much that has impacted. Obviously, we don't forecast. And we don't hope for any more disruptions like that.
We are also now with the frozen assortment, we are in a much better place. We have a couple of more steps versus 10 steps. So we are basically 80% there in terms of frozen, but we still need to work on that. So that is still there. We are a couple of months later than we initially thought than we talked last time.
So -- but we're also equally confident that the efficiency improvements and all of that will come in and will start in the last -- in the second half. So even if we are a couple of months later, we're still looking forward now to -- in the fall now to start to improve the efficiencies and start to drive this fantastic warehouse to its capacity. But yes, we are -- we had some higher cost also related to not only the disruptions, but we are still in this transition.
As we talked about in Q1, we had higher costs related to that. We knew that when we went into this year. It is still some cost in Q2. It will be significant lower cost, but we'll sure have some also cost as we are not there yet. We are a few months later.
And on those costs, just to get a sense of the level. I think you talked, well, around SEK 20 million or so in Q1. What it sounds like it's a bit higher in Q2?
Yes. If you have the remaining part of -- if we are down SEK 100 million, you are SEK 40 million disruptions that SEK 60 million left. It's a half split between sales, soft sales and also the delays. So we're around SEK 25 million, SEK 30 million in the transition. That will go down is our estimate now for Q3.
Okay. Good. That's very helpful. And last question from my side before I jump back into the queue. On the hiccup with the payment systems you had in May, I'm curious to hear what sits in that SEK 20 million one-off that you estimate? Is it only lost sales? Or is it only -- or also significant amounts of sort of, I guess, cost to handle the whole thing in that number? And also do you...
Well, of course --
Yeah. Sure.
-- yeah, you just staff up and related -- when these things happens, which doesn't happen that often, but it was a major hiccup and which was part of the new transformed payment system. And of course, we had to focus on to staffing up to inform the consumers and the customers in that perspective.
But relatively, is also, of course, that sales dropped as the consumers that could not pay with a normal payment system during that period. So it's a mix of these things.
Right. And then what's a good estimate on the sales effect rather than the...
Once again, sorry, Fredrik, what did you say?
Do you have a good estimate on the sales impact?
Yes. It was an estimate on the sales impact that was clearly in May. But I can't say it's significant for the quarter, but it was clearly in May.
Okay. Fair. And the split on those SEK 20 million, is it mainly in Willys, I assume?
Yes. Correct.
The next question comes from Magnus Raman from Kepler.
I think I'll just delve a bit more on the extraordinary costs for a bit here. If we think about the acquisition cost here, the SEK 26 million in Q2, do you see it as most costs have been taken in this quarter or any more costs to expect in Q3, firstly?
From an acquisition point of view, that's -- the cost has been taken.
Great. And then on the sort of the logistical transition here, you mentioned already you're a few months behind. And you gave some leads on those double transportation efforts here of roughly SEK 25 million or SEK 30 million cost for that. Will you continue with this exercise throughout the Q3 quarter? Or have you already?
No, you're right. And I think and I hope I was clear on that that we had extra costs as we knew in Q1. We also talked about that will continue in Q2. It became somewhat higher than we thought because we are later. So we ended up in this SEK 30 million, SEK 25 million, SEK 30 million. Now we are in the end of it. So our expectation, it will be lower than this in Q3 in the transition plan.
So lower than these numbers that continued cost also in Q3?
Lower than in Q2, yes.
Right. Maybe if we take it a different way. I mean, you've previously been talking about some 6 old sort of existing warehouses bound to be closed. Now you've taken the decision to keep 1 or 2, I believe, open more long-term. Can you give any sort of just lead here of how many, if any, warehouses have been fully closed to date? And how many, if any, do you expect to close over the second half of '24 or beyond?
We'll go out with that as we are. But as we are now transforming and I just -- which is more -- I think more important, that we don't see any change out of these moves that we are doing. We are not seeing any change in efficiency improvements when we look at the Dagab performance when we are making this transformation.
Why have we done this? Clearly, the bigger one in this, the other one is more or less working in, it would be our timings. But why have we done the early blue part with service trade? I need to emphasize that it's service trades, so which is because it's a different type of logistics. It's a different type of send-outs to the stores with that.
And we learned during the exercise when we have made this transformation that it's better suited to run that separately outside of Balsta. That will create better efficiencies in Balsta over time since we are focusing on the normal, help me here, [Foreign Language] and so that will support that part.
So since we have had significant volume growth and in that part, we will continue to drive that. And it will suit us better to separate. And it will also suit service trade better to suit, to keep that in Orebro. So it doesn't change the economics, but it will change the structure. That's why we have worked on how we are now -- when we're learning about how they work and how we optimize Balsta, we also learned that we need to rebalance some of the volumes to better suit the structure. So it won't change the efficiency gains, but it will change how we operate and we think it's even a smarter way.
But can I linger just there? Is it possible to say how many warehouses, old warehouses have been closed to date and how many you expect to close you've been working across?
It is possible, but we are working on that. And we are -- for example, you have one up north that we are looking at. And we worked that together with the employees here, when -- what timing so that will do -- that will happen, so that will come in due time.
All right. And then you mentioned the service trade and mentioned soft sales to external customers have a key reason behind the Dagab weakness. Is this -- can you tell on this a bit this weakness? Is that -- do you see that as a more sort of permanent shift or something extraordinary has been in the quarter here?
No. I mean, of course that we have a large part of external customers in Dagab. And you can clearly see the impact for Dagab. Dagab is reporting 0.8% sales growth. Obviously, that is when you're touching on that with the normal cost inflation we have, of course, that is the challenge.
So we, of course, expect to see higher growth. We are now in -- as we have also shared, we have external customers we have in Hemkop. As we've seen, we have dropped a few stores. That is an impact. They are also part of the external part. We have some of the smaller formats that is in this environment that we see and have had a tougher comp figures and is having a softer development.
We, of course, want to support and do all that we can to support these customers as well, but they've had a more challenging time. That has an impact when the inflation is so low and when the volume is soft. So in all, obviously, to drive Dagab as a total, we also -- one key component going forward is, of course, that we have a healthy sales development. That will also drive our ability to drive both efficiencies, but also profit development in Dagab.
All right. And then, finally, I also want to congratulate you to a very strong development during those 7 or 8 years, even including today's numbers and so on.
The next question comes from Simen Aas from DNB Markets.
Sorry to bother you about Dagab again, but I just have a follow-up on this. You previously talked about at the CMD that you expect sort of SEK 200 million to SEK 300 million initially to start in the first or the second half of '24. Is this sort of now pushed to '25 or should we expect some of it over therein maybe Q4 than Q3 is having some issues?
Yes. The target is still the same. We still see that coming in. But as I comment, we are a couple of months later. So it will more gradually come in during the fall. So correctly, it's a bit later. But there is no changes in our expectations in that area.
Okay. Okay. That's clear. And then maybe on another topic then. Now with volumes, obviously, returning here in the first half of '24 for the market and you have obviously been growing volumes nonetheless, but could you just give us some color on the gross margin in Willys and Hemkop? Have you seen any improvement there or any signs of easing competition now that sort of your main competitors also are growing volumes?
Well, as I -- and I think it more relates to the initial question in terms of how the market dynamic is at this stage. Even if we are seeing some positive signs, we still see kind of the same consumption patterns. And it's obviously also a very competitive market still out there. So there are no significant changes in that area yet.
Okay. So, sorry, you don't expect sort of trough gross margins maybe, is that still ahead? Or do you think we should expect improvements now going forward?
What we expect going forward, that, of course, depends a lot on then how we can have different -- or that, of course, depends on how the market development continues and move forwards, of course. But what I can comment on over the first half year now this year, it is a competitive market out there.
Consumer patterns has not significantly changed in that aspect. So we are seeing the same. Now how it will move forward, of course, there is many different things that can influence that, obviously, over time. But as we pointed out, we are, I guess, for us, it's very more important to secure that we meet the customers and we are getting that growth. That will, over time, strengthen us. I'm super confident about that.
Okay. Okay. That's clear, Klas. And then just one final one for me. So the gap, obviously, between you and the market has narrowed and you barely beat them in Q2. But how should we think about that going forward? Do you think that you still will be able to beat the market going forward? Or should we expect sort of the hard comps to catch up with you in a way?
No. I think if you look at the comps that we had during the period was of course, extremely high when we had this boom of inflation. Now if you look at before that period, we have gained market shares and we have grown faster than market over time. And of course, we have a clear ambition and a clear vision to -- and a clear target to continue to outgrow the market.
We want to continue to -- if you look at the position Willys has, as I pointed out in this report, it has continued to strengthen its brand. It's continued to strengthen its consumer appeal. The measures and the ratios indicate all of that. Hemkop, I think, is worth noting out has done a fantastic journey, but they are still on that journey. They will continue to drive the positive impact of Hemkop.
And then, of course, we have also other growth opportunities. The acquisition is one. There are more areas as well that we think that will lead us to continue to outperform the market. That is a clear ambition for us.
Okay. That's clear, Klas. And then just finally for me just to congratulate you on a very nice journey in Axfood and good luck going forward and...
The next question comes from Daniel Schmidt from Danske Bank.
I think that I will start in the reverse order. And thank you, Klas, for a very good collaboration and leadership over the past 7 years. I think it's been really an impressive performance, especially in the past 4 years. You've been standing tall in a very, very strange market when it comes to COVID and hyperinflation and all that. So wish you best of luck going forward and I hope we'll see you again.
Just moving on then to the regular agenda and you mentioned soft sales, of course, when you talked about Dagab and you also mentioned the negative calendar effect, which should swing back, I think you mentioned in Q3.
Yes.
Do you think that alone, is that making up a decent part of -- if you split that SEK 60 million that you mentioned into SEK 30 million being transitioned and SEK 30 million being softer sales, is half of that SEK 30 million is basically Easter effect? If you [indiscernible]?
Well -- I mean, the calendar effect now, of course, is negative for Dagab and that will bounce back. But of course, there are some parts of the SEK 30 million that you're referring to is, of course, related to effect. But I don't think -- I think we need to lift up the perspective in that perspective. We have somewhat softer sales. We want to see that coming back. But it's clearly impacted in, but also then we had a transition and then we have the disruptions.
I think we've been trying to be as clear as we can now to divide these areas what has impacted. Of course, calendar effect is one. But we want to see a higher growth going forward as well for Dagab.
Yes. Okay. Cool. And just maybe on that topic, you mentioned, I think I have not seen that before that you're moving sort of Snabbgross from Backa to Hassleholm. Is that temporary? Or because you want to sort of -- you mentioned that you want to accelerate the optimization when it comes to automation and so on and also expand Backa. Is that going to move back then when you're done with those volumes?
That's a good question. I think that what we've seen right now is to -- and I think I said it, we always look at how we should optimize in the best way and so forth. And obviously, it's a bit different assortment that works nicely as well in Hassleholm for Snabbgross and we're looking at geographically as well.
So if we're going to reverse back, we'll see. But right now, it's been very much focused on since we have to say we've had a fantastic volume growth over the years. And we've [indiscernible] up that for the northern part with Balsta. Backa, we need to have that increased capacity with the new high bay and that will come in, in the spring 2025.
So of course, up to then, we need to work on volume capacity. How that will move then later on, I will leave that to my successor. Clearly, it's been more of a step now to secure improvements in Backa and secure capacity in Backa until we have opened up the new high bay warehouse.
Okay. Cool. So spring '25 and then we'll know. And then just a very short one on the SEK 26 million, do they fall under group costs?
Yes. Yes.
[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.
Well, that just concludes today. And I appreciate all the questions and thank you for calling in. And lastly, thank you, [indiscernible]. It's been a fantastic journey. Thank you.