Earnings call transcript: Axfood Q2 2026 profit rises as

Earnings call transcript: Axfood Q2 2026 profit rises as sales growth lags

Gold extends losses as oil rally keeps Fed rate outlook in focus Axfood said second-quarter profit increased despite food price deflation, but the Swedish grocer’s shares fell sharply in premarket trading, signaling investor concern over modest sales growth and pressure at its key Willys chain. The company reported adjusted operating profit of SEK 972 million, up from a year earlier, on net sales that rose just below 1%. The stock dropped 10.68% to $236.8 from a previous close of $265.1, moving closer to the low end of its 52-week range of $231.2 to $338.

Key Takeaways - Adjusted operating profit rose to SEK 972 million in the quarter, even as food prices fell and competition remained intense. - Net sales increased just below 1%, with growth driven mainly by higher volumes rather than price increases. - Willys, Axfood’s largest concept, faced tough comparisons, while Hemköp continued to outperform the market.

- The company said its new logistics structure and cost controls helped offset deflation, fuel costs and salary inflation. - City Gross remained a turnaround story, with management targeting profitability in the second half of 2026. Company Performance Axfood delivered a mixed quarter.

The company posted higher earnings and stable margins, but sales growth remained modest in a Swedish grocery market shaped by food price deflation and a recent VAT cut on food. Management said the quarter was marked by strong volume growth, but also by high comparison figures from last year and a highly competitive market. First-half net sales reached SEK 45 billion, up 1.7% from a year earlier.

Adjusted operating profit for the first half rose 4% to about SEK 1.8 billion, and the adjusted operating margin improved to 4.0%. That suggests the company is still finding ways to protect profitability even when pricing conditions are weak. Performance varied across the portfolio.

Willys, Axfood’s discount banner, remained the company’s core traffic driver but grew more slowly than the market. Hemköp, by contrast, continued to gain share and posted growth of more than 7% in retail sales. City Gross remained under pressure, though management said a new pilot store concept is being tested in Linköping.

Financial Highlights - Net sales: rose just below 1% in Q2; up 1.7% to SEK 45 billion in the first half. - Group operating profit: SEK 964 million in Q2. - Adjusted operating profit: SEK 972 million in Q2, flat year over year on an adjusted margin basis.

- Adjusted operating margin: 4.2% in Q2, unchanged from a year earlier. - First-half adjusted operating profit: about SEK 1.8 billion, up 4%. - Gross profit margin: 14.77% over the last twelve months, reflecting the competitive pricing environment.

- First-half adjusted operating margin: 4.0%, up 0.1 percentage point. - Items affecting comparability: minus SEK 8 million in Q2, mainly tied to City Gross structural measures. - Dagab operating profit: SEK 280 million, with a 1.3% operating margin.

- Cash flow from operations: minus SEK 47 million in Q2. - Net debt and liquidity: the company used about SEK 2.8 billion of credit facilities at quarter-end, down from SEK 3.1 billion at the end of Q1. Company Performance The quarter showed Axfood’s ability to defend earnings in a difficult environment.

Management said the improvement came from higher sales volumes, stable gross margin trends and cost discipline. Those factors helped offset food price deflation, elevated fuel costs and wage inflation. The Swedish grocery market grew 3.7% in the quarter, or 4.9% after adjusting for deflation and calendar effects, according to management.

Axfood’s retail sales rose 2.9%, lagging the market. The company said Willys faced especially difficult comparisons after strong growth a year earlier, while Hemköp continued to strengthen its position. Axfood also highlighted the benefits of its multi-brand strategy.

The company operates across discount, premium, hypermarket and convenience segments, giving it exposure to different customer groups. Management said that structure remains a key advantage in a market where consumers are still highly focused on price and value. Financial Highlights - Willys retail sales: up 1% in Q2, or down 1% on a comparable basis.

- Willys operating profit: SEK 524 million, with a 4.2% margin. - Hemköp retail sales: up more than 7%. - Hemköp operating profit: SEK 123 million, with a 5.4% margin.

- City Gross adjusted operating loss: minus SEK 11 million. - Snabbgross operating profit: SEK 93 million, with a 5.8% margin. - Dagab net sales: up about 1%, driven by higher volumes.

- Share of electricity in fuel mix: almost 14%, up from just below 5% a year earlier. Earnings vs. Forecast Axfood’s call did not include reported EPS or revenue figures in the materials provided, so a direct comparison with the forecast cannot be made. The forecast called for EPS of $3.19 and revenue of $23.6 billion.

Even without a formal EPS or revenue comparison, the operating results suggest a quarter that was better on profitability than on growth. Adjusted operating profit rose to SEK 972 million, and the margin held steady at 4.2%. That kind of result can support confidence in execution, but it may not be enough to satisfy investors if they were looking for stronger sales momentum.

Market Reaction Axfood shares fell 10.68% to $236.8 in premarket trading, down from a previous close of $265.1. The stock’s decline put it near the lower end of its 52-week range of $231.2 to $338. The move suggests investors focused more on the modest sales growth and the pressure on Willys than on the improvement in profit.

The company said competition remained very high, and management also pointed to food price deflation, fuel costs and a still-early City Gross turnaround. Those factors may have outweighed the positive margin and earnings trends in early trading. According to InvestingPro data, the stock is now trading near its 52-week low and appears undervalued based on the platform’s Fair Value analysis, suggesting the market reaction may have been overdone.

The company trades at a P/E ratio of 24, while maintaining a market capitalization of approximately $6 billion. Outlook & Guidance Axfood kept its full-year 2026 guidance unchanged for investments, new store openings and items affecting comparability. The company still expects 10 to 15 incremental new store openings for the year, after seven were completed in the first half.

All first-half openings were Willys stores. Notably, Axfood has maintained dividend payments for 25 consecutive years with a current yield of 3.39%, providing income stability for long-term investors. InvestingPro assigns the company a "GOOD" Financial Health score and offers 11 additional ProTips for subscribers, including detailed analysis available in comprehensive Pro Research Reports covering over 1,400 top stocks.

Management said the new Willys 5.0 format will continue to roll out, with 70 stores expected to operate under the format by year-end. The company also said it is taking targeted short-term measures to improve traffic at Willys, while maintaining its “cheapest bag of groceries” position. At City Gross, management said the pilot store in Linköping is being evaluated and adjusted, with profitability targeted for the second half of 2026 if like-for-like sales improve.

Dagab will continue to focus on logistics efficiency and fleet electrification, with a goal of electrifying 50% of the vehicle fleet by 2030. Executive Commentary “We delivered positive growth and increased earnings against high comparison figures in a market characterized by food price deflation,” CEO Simone Margulies said. “The improved profit was primarily driven by higher sales volumes, a stable gross margin trend and effective cost control,” she said, pointing to the main reasons earnings held up.

“For us, the most important is to have the cheapest bag of groceries, and we continue to have that for Willys,” Margulies said, underscoring the company’s focus on discount pricing. CFO Anders Lexmon said the company is now on “a new level compared to previous years” because of efficiency programs introduced earlier. Risks and Challenges - Food price deflation: Lower prices can reduce reported sales growth even when volumes improve.

- Intense competition: Management said the market remains “very high” in competition, limiting pricing power. - Fuel costs: Elevated HVO prices and transport expenses continue to weigh on earnings. - Willys comparison base:

Strong growth last year makes current growth look weaker. - City Gross turnaround: The chain still needs better sales and profitability to become a stronger contributor. Q&A Analysts focused heavily on Willys, City Gross and the impact of the VAT cut on pricing and working capital.

Questions centered on whether Willys needed more tactical price action, whether those measures would hurt margins, and whether the discount chain was losing momentum. Management said the measures are targeted and based on customer insight, not broad promotional copying. Analysts also pressed on City Gross, asking whether the new concept in Linköping could lead to a faster rollout.

Management said no fast rollout is planned, but it still expects the chain to improve and aims for profitability in the second half. Another area of focus was working capital. CFO Anders Lexmon said about half of the more than SEK 700 million negative working-capital impact in the first half was tied to the VAT change, and that the effect should reverse if VAT is normalized.

Management also said the company’s cost base is now at a new, lower level after earlier efficiency programs. Full transcript - Axfood AB (0R6R) Q2 2026: Alex Bergendorf, Head of Investor Relations, Axfood:

Good morning, everyone, and welcome to the Axfood second quarter 2026 earnings presentation. My name is Alex Bergendorf, Head of IR here at Axfood. With me today are Simone Margulies, President and CEO, and Anders Lexmon, CFO.

In the investor section of our axfood.com website, you will find the presentation material for today’s call. We encourage you to have that presentation at hand as you listen to our prepared commentary. After the presentation, we will be taking questions.

A recording of this call will be made available on our website. With that, I will now hand over the words to Simone. Please go to page number 2.

Simone Margulies, President and CEO, Axfood: Thank you, Alex. Axfood maintained a high level of activity during this second quarter, with focus on further strengthening presence, competitiveness and efficiency.

We delivered positive growth and increased earnings against high comparison figures in a market characterized by food price deflation. We are well positioned for the future and continue to pursue our long-term strategic plans, while we at the same time implement targeted tactical measures to strengthen our growth also in the short term. Turning to page three, with that very brief introduction, let me now take you through recent market developments and Axfood’s second quarter performance.

Let’s move on to page four. Market growth amounted to 3.7% during the quarter, which was a somewhat lower level on a sequential basis. However, compared to the first quarter this year, there was deflation in food prices that impacted market growth negatively.

As you all probably know, the VAT on food was reduced on April 1st from 12% to 6%. This was fully reflected in the price development on the market. Also excluding that effect, there was deflation, mainly driven by lower prices in the dairy category.

In total, the annual rate of deflation was minus 6.2%, including VAT, according to Statistics Sweden. Excluding VAT, the deflation is estimated at minus 0.9%. Adjusting for the deflation and a negative calendar effect of minus 0.3%, market growth was strong at 4.9%.

It is of course still early days to determine how the reduced VAT has affected consumer purchasing behaviors. That said, the second quarter development of the market clearly shows an improved volume trend. At the same time, the world around us remains uncertain, it’s also clear that consumers continue to focus on price value.

Next slide, please, number 5. Axfood’s retail sales increased 2.9% in the second quarter, also driven by higher volumes. We faced high comps from last year, we really outperformed the market then by quite a large extent.

This is evident if you analyze the development over a two-year period. This is shown in the chart to the right on this slide. Last year, we also had contribution from City Gross.

Despite the strong sales increase last year, deflation and the negative calendar effect, growth did not reflect our ambitions. We are now on page six. Consolidated net sales for Axfood grew just below 1% in the quarter.

As I just mentioned, this was mainly driven by higher volumes. The development varied between our various retail chains. Hemköp really stands out this quarter with continued very strong growth.

As for City Gross, as a reminder, total growth continues to be impacted by store closures. Please go to the next page, number seven. In all, we report increased earnings in the quarter despite the lower growth.

Group operating profit increased to SEK 964 million, and the operating margin was higher at 4.2%. Operating profit included items affecting comparability of minus SEK 8 million related to City Gross. Last year, items affecting comparability also related to City Gross and amounted to minus SEK 25 million.

On an adjusted basis, operating profit increased to SEK 972 million, and the margin was flat year-over-year, amounting to 4.2%. The improved profit was primarily driven by higher sales volumes, a stable gross margin trend and effective cost control. Earnings were negatively impacted by deflation and also costs of SEK 40 million due to higher fuel prices.

Joint group reported a narrowed operating loss, partly due to cost savings from our measures to improve efficiency within and between the group’s support functions, including workforce reductions. Let’s now turn to Willys on page eight. The high comps we faced this quarter was mainly in Willys.

Last year, Willys really outperformed the market as growth in the period amounted to 10.2%, compared to 6.1% of the market. In addition, Willys growth this quarter was negatively impacted by deflation. In all, Willys grew 1% in total and minus 1% on a comparable basis.

With the negative growth in like-for-like sales, earnings declined to SEK 524 million, corresponding to an operating margin of 4.2%. The gross margin development was stable. I will get back to Willys’ development and strategic agenda later in this presentation, for now, let’s turn to page nine and Hemköp.

As I mentioned, Hemköp continued to demonstrate a very strong performance in the second quarter and clearly increased its market share once again, delivering retail sales growth of more than 7%. Growth was driven by higher volumes with an increase in customer traffic, and in addition, a higher average ticket value contributed positively. On the other hand, deflation impacted growth negatively.

Like-for-like growth was also very strong. In total, operating profit increased to SEK 123 million, and the operating margin was also higher at 5.4%. The development was mainly driven by the increased sales volumes, a stable gross margin, and solid cost control.

Turning to page 10. With the City Gross acquisition, we have taken position in the attractive hypermarket segment and work to develop the chain so that it can become a long-term competitive player is ongoing. This quarter, City Gross once again delivered a positive profit development with a narrowed operating loss.

In total, the loss amounted to minus SEK 11 million on an adjusted basis, corresponding to an operating margin of minus 0.5%. City Gross reported somewhat weaker growth this quarter, the improvement was mainly due to effects from structural measures as well as efforts to streamline operations. On a reported basis, the operating loss amounted to minus SEK 3 million, which corresponds to an operating margin of minus 0.1%.

This included the items affecting comparability I mentioned, which refers to structural measures for stores. In late May, City Gross closed its store in Länna, Stockholm, its fourth store closure so far. Later this summer, City Gross will be closing down its Helsingborg store, which will be converted to Willys during the fall.

We are now on page 11. Snabbgross’ sales were unchanged compared with the corresponding quarter last year, both in total and on like-for-like basis. Earnings were just slightly below last year.

The gross margin trend was stable, but the weak sales development could not offset the cost inflation. In total, operating profit amounted to SEK 93 million, corresponding to an operating margin of 5.8%. Next, page number 12.

Dagab’s second quarter net sales increased by approximately 1%. As for the development in our retail chains, growth was negatively impacted by deflation, so also here, the development was driven by higher volumes, mainly to Dagab’s food retail customers and especially Hemköp. Operating profit amounted to SEK 280 million and the operating margin was 1.3%.

Earnings were negatively impacted by deflation, market investments, and increased cost due to high fuel prices, which I mentioned earlier. Improvements in productivity from our new logistics structure had a positive impact on the profit development. Dagab continues to optimize the flow of goods to further improve efficiency and productivity.

Dagab also continued to invest in transports with ambitions of electrifying 50% of its vehicle fleet by 2030. In addition to investments in logistics, the company maintains a high pace of assortment development, launching 60 new products under a private label brand during the quarter. That concludes the first part of today’s presentation.

Now it is time for me to hand over to our CFO, Anders, to take you through the financials, and we are now on page 13, but please go to the next page, number 14, and Anders, please go ahead. Anders Lexmon, Chief Financial Officer, Axfood: Thank you, Simone. During the first half of the year, net sales for the group increased 1.7% to almost SEK 45 billion.

Retail sales increased 2.9%, which was lower than the market in total, where growth amounted to 4%. Adjusted operating profit increased 4% to almost SEK 1.8 billion. The adjusted operating margin increased by 0.1 percentage points to 4%.

Next, page number 15. During the second quarter, the cash flow was minus SEK 47 million, SEK 86 million lower compared to last year. Cash flow from operating activities and net working capital was negatively impacted by the VAT cut on food from 12% to 6% as of the 1st of April.

The negative cash flow from investment activities of minus SEK 376 million in Q2 was somewhat lower compared to last year, mainly driven by lower investments in warehouses and IT. Investments in our retail operations were in line with last year. The increased cash flow from financing activities was explained by lower amortization of credit facilities compared to Q2 last year.

By the end of Q2, Axfood utilized approximately SEK 2.8 billion of our credit facilities, compared to SEK 3.1 billion by the end of Q1. Please turn to next page number 16. Net debt increased compared to year-end 2025 due to higher leasehold debt, utilization of credit facilities, and lower level of cash.

The net debt to EBITDA improved compared to Q1 thanks to a strong EBITDA development and a lower net debt. The equity ratio amounted to 19.1%, which was lower than in December 2025 due to the dividend. The Q2 equity ratio was, however, 0.9 percentage points higher compared to Q2 last year.

Investments excluding leasehold debt and acquisitions amounted to SEK 927 million during the first six months. Year to date, we have established seven new Group own stores, which was in line with last year. Compared to last year, investments in store establishments and warehouse automation has increased while investments in IT and trucks has decreased.

Please turn to next page number 17. Axfood has a solid negative net working capital. The recent VAT cut has, however, had a negative impact, and consequently, the 12-month rolling KPI was negatively impacted in the first six months.

Capital employed has increased in recent years, mainly due to the acquisitions of Bergendahls Food and City Gross, as well as investments in our Bålsta logistics center. The level of capital employed has, however, decreased slightly since year-end, as equity was reduced not only by dividend paid, but also the dividend to be paid in Q3. This effect was partly offset by higher leasehold debt.

Thanks to improved earnings and the reduced capital employed, ROCE improved by 0.9 percentage points compared to 2025. With that, Simone, I am finished with my presentation, I hand over to you again. Simone Margulies, President and CEO, Axfood:

Thank you, Anders. We are now on page 18, it’s time for me to give you a more detailed update on our strategic agenda and priorities. Let’s turn to page 19.

We have a clear house of brand strategy in our group, this makes us unique in Swedish food retail. We aim to deliver the strongest customer experiences, we are present in all segments of the market with our different concepts. Please, next page number 20.

With a continued strong position, Willys is the store chain most recommended among households. Willys continues to develop its customer meeting and upgrades the store network to the latest Willys 5.0 store concept. By the end of the year, 70 Willys store in total will be according to the Willys 5.0 concept.

At the same time, new Willys stores are being opened at a rapid rate to reach even more consumers. The total store count is now 254. We’re seeing strong growth in both newly established and refurbished stores.

Just recently, Willys passed the milestone of 4 million members in its Willys Plus loyalty program. It clearly has a very wide reach that it can build on. Willys also focuses on increasing the growth rate in the short term through targeted tactical measures.

We are now on page 21. With prime store locations and an attractive, affordable assortment focused on inspiration and sustainability, Hemköp’s momentum continued to be strong, its growth was double the rate of the market in the second quarter. This really reflects the long-term work to strengthen the store chain market position.

Hemköp also continued to invest in modernizations of existing stores to further improve the customer experience. In total, Hemköp has 2.2 million members in its Club Hemköp loyalty program. Turning to page 22.

For City Gross, a highlight of the quarter was the launch of its new store concept at the pilot store in Linköping. City Gross has been working on this for some time, and the concept is developed based on a new strategy to revitalize the brand. The goal here is to create a vibrant food market with a relevant assortment and fresh produce in focus.

When developing the concept, scalability has also been key, as well as creating conditions for efficiency in store operations and sales management processes. It is positive that City Gross now has this pilot in place. Going forward, we will evaluate the concept and make necessary adjustments where we see it fits.

We are now on page 23. To create the right conditions for our retail concepts to be able to succeed on the market, we leverage our strengths as a group and focus on six strategic development areas. We have shown you this before, and I covered selection last year.

Now, I want to focus a little bit on two of these, operational efficiency, and sustainability. Please turn to page 24. Working cost effectively is part of our business model and is particularly important now as we work to mitigate the effects of food price deflation.

Above all, we are continuing to optimize the productivity and cost efficiency of our new logistics structure by also developing new ways of working using new technology and scaling up our use of data and AI. Our efforts to streamline the group’s support functions are also continuing to enable cost savings. Next page number 25.

We aim to be a positive force in society, taking the lead in promoting a sustainable food system and contributing to better public health, not least through assortment development and research collaborations. During the quarter, we launched new innovative products that promote sustainable and healthy consumption, including light meals made with hydrothermally treated whole grain rye that enables the body to absorb essential minerals. We also launched hybrid products combining meat with vegetables.

In the quarter, we had a good volume development in fruit and vegetables, which contributed to an increased share of sales from sustainability labeled products. We are also continuing to see positive effects from our transition to renewable fuels and electricity through reduced transport emissions. During the quarter, the share of electricity in the fuel mix increased significantly to almost 14%, up from just below 5% a year ago.

In late spring, our new ambitious climate targets were validated by the Science Based Targets initiative, making an important milestone in our efforts to reduce our negative impact on the climate and biodiversity. I would also like to highlight the group’s focus on diversity and inclusion. One example is that we contribute to helping young people in vulnerable areas enter the workforce by providing them with paid jobs under a study "Studiemotiverande arbetslivsorientering", which is a combined school and work experience program, which we now are expanding and through the newly established Forum for Inclusion.

Moving on from our strategic agenda, we are now on page 26. Our outlook for the year is unchanged, it covers investments, new store establishments, and items affecting comparability. With regards to the new establishments, in total, we opened up 3 new group-owned stores in the quarter, all of which Willys, and as Anders mentioned, for the year, we have 7 new store establishments.

Please now turn to page 27. Let me conclude. I can now summarize a quarter marked by a high activity level and increased earnings.

We have strong market positions, clear strategic priorities, and several ongoing initiatives to strengthen our presence, competitiveness, and efficiency. With distinctive concepts and shared culture and focus on execution, we are well equipped to continue to develop and create value over time. That was all for today.

Now, please turn to page 28, and I hand over to the operator to open up the line for questions. Thank you very much. Operator:

If you wish to ask a question, please dial #5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial #6 on your telephone keypad. The next question comes from Fredrik Ivarsson from ABG Sundal Collier.

Please go ahead. Fredrik Ivarsson, Analyst, ABG Sundal Collier: Thank you. Good morning.

Hope you can hear me. First, regarding the growth in Willys maybe. Last quarter, I remember you mentioned that it was impacted by a few things like temporary store closures and some store modernizations.

Would you call out any similar, let’s call it one-offs, impacting the market share in Q2? Simone Margulies, President and CEO, Axfood: Regarding the growth of Willys, I would say Willys has really high comparison figures, growing more than 10% last year.

That together with the price deflation, make them have a weaker growth this quarter. However, we wish to see a stronger growth, and that’s why we’re also taking some tactical measures now, so in the short term, improve the growth also for Willys. Fredrik Ivarsson, Analyst, ABG Sundal Collier: Okay.

No similar impacts as you saw in Q1. On those tactical measures, what’s that and what’s your assessment of the price positioning versus the market at the moment? Do you need to widen the gap, or is it anything else you’d talk about?

Simone Margulies, President and CEO, Axfood: To start with, we don’t comment exactly the strategy. However, for us, the most important is to have the cheapest bag of groceries, and we continue to have that for Willys. Regarding the tactical measures, it’s measures to increase the traffic to the stores on a short term.

Fredrik Ivarsson, Analyst, ABG Sundal Collier: Okay. Fair enough. On the higher fuel cost, SEK 40 million, obviously, I guess difficult to say where the HVO prices are heading, but at the current level of, I think it’s around 30 SEK per liter.

The headwind should become slightly lower in the back half of the year. Is that your view as well? Simone Margulies, President and CEO, Axfood:

Yeah, Fredrik, we have to come back to that, but obviously, it’s depending how the situation in the Middle East is developing and how the prices is developing. We have to come back to that. Fredrik Ivarsson, Analyst, ABG Sundal Collier: Okay.

Last from me before I jump back into the queue. You didn’t call out any impacts from the temporary cut in employer tax for young workers this quarter. Was this not significant?

Will it impact rather Q3? Simone Margulies, President and CEO, Axfood: No. Of course, it’s positive with the, as you said, the reduced tax for employees, which has a positive effect.

It’s not, as we see, significant, since we also have the, how you say, the normal inflation in salaries that is much, much bigger. Since we singled out the fuel, this is obviously not in line with that, how you say, that amount. Fredrik Ivarsson, Analyst, ABG Sundal Collier: Yep.

Okay, good. That’s all. Thank you.

Simone Margulies, President and CEO, Axfood: Thank you. Thanks.

Operator: The next question comes from Niklas Ekman from DNB Carnegie. Please go ahead.

Niklas Ekman, Analyst, DNB Carnegie: Thank you. Can I ask about City Gross, where you’re seeing reduced losses now, but both like-for-like and store sales here are negative. Obviously, partly related here to store closures, but can you talk about any efforts here to reverse the sales trend, or do you think focus still in the short term is mainly on improving the profitability?

Simone Margulies, President and CEO, Axfood: I think I said it before, to create profitability, of course, you have to do it through attracting customers and drive volume, then you get the profitable growth. As you said, the sales in City Gross on total is affected by store closures, and we have a negative like-for-like sales in City Gross.

Of course, we would like to see stronger growth in like-for-like for City Gross. They are affected a lot of the price deflation, I would say. For us, it’s to have the balance between all the parameters.

However, we’re following our plan and we see the increase in the, how say, profitability. The loss is lower and we’re following our plan. That’s why we also reiterate the goal to be profitable sometime in the second half of this year.

We have to be that together with growth in like-for-like sales. We said before, and that’s what we’re working towards, to create a healthy core where we have both sales growth in like-for-like and also making a good development in both the brand and also the customer meeting. Niklas Ekman, Analyst, DNB Carnegie: Can I just ask how is City Gross impacted by deflation?

I can see why Willys would lose some of its attractiveness when price is not the key focus area. I think for City Gross, you shouldn’t see that impact. They should be able to drive traffic even with lower prices.

Did I miss something there? Simone Margulies, President and CEO, Axfood: Yeah, maybe I was unclear.

Since we do not single out volume or mix or deflation, the deflation decreased the top line. Niklas Ekman, Analyst, DNB Carnegie: Okay. Fair enough.

Also just in general here, if you look at the industry, it’s been impacted. There’s been quite significant margin pressure in the last two, three years, quite significant price pressure. Are you seeing any signs of this easing now, particularly since we saw the VAT cut, are you seeing still very tough price competition among your competitors?

Simone Margulies, President and CEO, Axfood: No, I can confirm that it’s still a very high competition in the market. I would say it’s unchanged.

It’s been a high competition for a couple of months or a couple of years now. That is the market climate, high competition. We have the VAT reduction, then we also have a deflation on top of the VAT cuts.

Also on that, I think it’s important to single out that we have really high comps from last year, the highest comps in the market. That’s also why I’m glad that we still continue to have a very stable margin and increase our profitability, because in this climate where we have increased costs for salaries and for fuels that we single out, we wish some high growth, but still we can continue to increase our profitability and have a stable margin, which is important for us, of course. Niklas Ekman, Analyst, DNB Carnegie: Very good.

Just some details here on store openings. Can you quantify how many store openings you’re looking for in Q3? If you mentioned another City Gross conversion here later this year, are you happy then?

Is this kind of the last of the initially planned store conversions, or do you think that there could be room for additional City Gross stores to be converted? Simone Margulies, President and CEO, Axfood: We made seven new stores this first period, we are aiming towards the 10-15 new stores for the year, those are incremental, 10-15.

For City Gross, we are continuing in the structural changes we’re doing. It can be more. Niklas Ekman, Analyst, DNB Carnegie:

Okay. Very clear. Thank you for taking my questions.

Simone Margulies, President and CEO, Axfood: Thank you. Operator:

The next question comes from Daniel Schmidt from Danske Bank. Please go ahead. Daniel Schmidt, Analyst, Danske Bank:

Yes, good morning, guys. A couple of questions from me. You talk about sort of price being at the top of the agenda still for consumers.

Is there any sort of change in consumer preference at all, you think, given the performance of Willys? I hear you clearly when it comes to the comp base and so on, but is there any sort of feeling that location is back a bit higher on the agenda again and inspirational assortment and all that for the consumer in Sweden? Simone Margulies, President and CEO, Axfood:

It’s still a little bit early to draw any large conclusions since we also in the quarter have Easter and we have Midsummer. We see in the market as a whole a stronger volume growth since the reduced VAT. We also see increased growth in sustainability labeled products and also fruit and vegetable, which we haven’t seen for now a couple of years.

We’re happy to see that. We have some mix effects regarding sustainably labeled and also fruit and vegetable. However, we see still a very strong focus in price awareness and that comes together also from the consumer, but also in the high competition in the market, I would say.

Daniel Schmidt, Analyst, Danske Bank: Okay. Given the first thing you’re saying here, is that also why you feel that Willys 5.0 converted stores, are they surprising you positively, or did you expect a good sort of outcome of those conversions? Simone Margulies, President and CEO, Axfood:

Sorry, the outcome of the Willys 5.0, you asked, no? Yeah. Daniel Schmidt, Analyst, Danske Bank:

Yeah. Which is bringing a more inspirational sort- Simone Margulies, President and CEO, Axfood: Yeah Daniel Schmidt, Analyst, Danske Bank: and shopping experience.

Simone Margulies, President and CEO, Axfood: Yes. We work very systematically with our development on new store concepts.

We start with making a store concept. We test it, we do pilots, and we do changes until we think it’s 100%, and then we escalate the scaling up of them. Regarding the Willys 5.0, we did this last year.

We feel pretty sure now that they are really delivering. We see now when we modernize store, we get really good results of that. Also when we do establish new stores, we do them in the new store concept, and they take a really good market share from very good start.

One other thing that is within Willys, they have high comparison figures this quarter. However, we see that we continue to attract new customers. We reached the milestone of over 4 million customers in the Willys+ loyalty program, which is a good reception that the consumers continue to like Willys.

Daniel Schmidt, Analyst, Danske Bank: Yeah. Of course, when you talk about short term, is sort of to strengthen the growth in Willys and targeted technical measures or tactical measures, sorry.

It sounds more like increased promotional activity rather than converting Willys store to 5.0 in a faster pace. Maybe that’s not doable. Is that the right interpretation?

Simone Margulies, President and CEO, Axfood: I would say Willys has a really, really strong position. We continue to invest strategically, in, as you said, modernizing the stores and also establishing new stores.

For us, it’s more about the short term tactical measures that we are addressing now. We feel really secure in the Willys concept, the new stores that we’re establishing, the new concept. We will continue to invest in that.

We do some tactical measures now in the short term. Daniel Schmidt, Analyst, Danske Bank: Okay.

Is there any way to mitigate the fuel price hit that you took in Q2? Just looking at the HVO prices, they are about the same level now as they were in Q2. You talk about converting to electricity-driven transports, and you’ve done a lot in the past year.

Is there any way to speed that up? Simone Margulies, President and CEO, Axfood: I think we have a plan on how to invest in transports.

We have the goal of reaching 50% of our fleet, electricity rate of 50% of our fleet to 2030. We continue to work according to that plan, actually. I would say that the margin that we continue to have a stable margin in this market where we have deflation, also increased food price deflation and increased costs.

I think that’s a good proof of how we work with cost efficiency within, how also our new logistics platform actually is delivering. Daniel Schmidt, Analyst, Danske Bank: Okay. On costs, finally, group costs surprised positively far below last year and far below what I expected at least.

What is the true baseline here? What is the right modeling going forward? Anders Lexmon, Chief Financial Officer, Axfood:

It’s quite hard to give you an exact baseline here, Daniel, as you know, it can differ from quarter to quarter. It’s clear that we now are on a new level compared to previous years, we see effects on the efficiency programs that we did last year. Daniel Schmidt, Analyst, Danske Bank:

Okay. It’s a good indication of what to expect in the coming quarters, what you did in Q2? Anders Lexmon, Chief Financial Officer, Axfood:

Yeah. It’s not far away, I would say. Daniel Schmidt, Analyst, Danske Bank:

Okay. Thank you. That’s all for me.

Anders Lexmon, Chief Financial Officer, Axfood: Thank you. Simone Margulies, President and CEO, Axfood: Thank you.

Operator: The next question comes from Magnus Råman from SEB Markets. Please go ahead.

Magnus Råman, Analyst, SEB Markets: Thank you. Most topics have been discussed here, but maybe I could just ask again about these tactical measures that has been discussed. Do you see that competition have been implementing these tactical measures and that you want to follow those, or is it more proprietary measures?

Simone Margulies, President and CEO, Axfood: I always think that we have distinctive concepts and each of our concept has their own way of doing things. It’s not about just copying what others are doing.

It’s about taking tactical measures regarding customer insight that we have for the Willys customers and addressing them very targeted to drive more traffic. Magnus Råman, Analyst, SEB Markets: Right. On the price competition that has been discussed as well, you mentioned it remaining high.

Still, isn’t it fair to, or haven’t we been living with an extraordinary circumstance in Q2 given the freezing of prices amid the halving of the VAT? Do you think that this sort of frozen price picture will remain in the second half of 2026, or would that be unfrozen, so to speak, now, going forward? Simone Margulies, President and CEO, Axfood:

I’d just like to clarify. We didn’t freeze any prices. We froze them just the week when we changed the prices in store, and that was a systematically freeze just to be able to handle over 8 million different price changes in our systems.

As we said, we have had a food price deflation during this period, which shows that we haven’t frozen any prices. I would say this quarter is a little bit different. Willys has performed very strong in many years.

However, they have had also some extra boost during last year when we had some inflation. The same way we had a boost during the years, 2022, when we had a large inflation. We think it’s important to look on Willys in a little bit longer perspective.

For the Q2, we meet these comparison figures of over 10%, and also the food price deflation. That’s also why we wanted to show the two-year stack growth, since we know that Willys get some extra push when the inflation is. However, they’ve been growing a lot over the years, both good economies and weaker economies.

I think that in total makes it a little bit weaker for Willys. Also we would like to see more growth in Willys, and that’s why we do these tactical measures. Magnus Råman, Analyst, SEB Markets: The tactical measures, are they expected to weigh on the profitability?

Simone Margulies, President and CEO, Axfood: I would say we drive profitable growth in balance. First we drive traffic loyalty, that’s how also we grow profitability.

I think it’s easy. You can see when we do not, as we did this quarter in Willys, had a positive like-for-like growth, it’s difficult also to get the profitability with us. That’s why it goes hand in hand.

Magnus Råman, Analyst, SEB Markets: It didn’t when you did the tactical price investments in halving the VAT two days or a few days in advance. How do you think about it in that perspective? Simone Margulies, President and CEO, Axfood:

There are different tactical measures you can take, aren’t they? Magnus Råman, Analyst, SEB Markets: Yes. You alluded to these being price cuts, as I read you.

Simone Margulies, President and CEO, Axfood: I said it’s about driving traffic to the stores. Magnus Råman, Analyst, SEB Markets:

Okay. Thank you very much. Simone Margulies, President and CEO, Axfood:

Thank you very much. Operator: The next question comes from Erik Sandstedt from Kepler Cheuvreux.

Please go ahead. Erik Sandstedt, Analyst, Kepler Cheuvreux: Thanks. Just a follow-up on Willys here.

Did you observe any changes in terms of customer shopping behavior in the quarter, like fewer shopping occasions, lower basket values, or increased cross-shopping with competitors that help explain the weaker performance? Simone Margulies, President and CEO, Axfood: As I said, it’s a little bit early to today draw any larger conclusion since we have calendar effects also in, and we have Easter, that was in the beginning of this quarter, and not in March as last year. However, we see some increases in fruit and vegetable sales and also the share of sustainability labeled products, that we can see.

Erik Sandstedt, Analyst, Kepler Cheuvreux: Yeah. Fair enough.

Moving topic. In terms of the cash flow, you highlighted VAT as a headwind to networking capital, what was actually the impact and the mechanics behind it, is this a timing effect that should reverse over the coming quarters? Anders Lexmon, Chief Financial Officer, Axfood:

Yeah. If you look at the negative impact in the first six months of little more than SEK 700 million in net working capital, I would say approximately 50% of that is according to the VAT cut. Obviously, when this reduced tax is reversed, we will see the opposite effect and the positive effect for us when we come to that moment.

Erik Sandstedt, Analyst, Kepler Cheuvreux: Okay, it’s only if the VAT is reversed that you will get that benefit back? Anders Lexmon, Chief Financial Officer, Axfood:

Yeah. Erik Sandstedt, Analyst, Kepler Cheuvreux: Yeah.

Okay. I understand. Good.

Just finally, in terms of your online business, it’s continuing to grow quite fast. What have you said in terms of profitability there, if you compare it to the store network? Is it diluting margins or where are you?

Simone Margulies, President and CEO, Axfood: As you said, we have a strong position in the online sales and the new Bålsta warehouse is to make the handling for home delivery more efficient in our online sales. I don’t think we go into details on how we’re reporting about our margins in our online sales.

Erik Sandstedt, Analyst, Kepler Cheuvreux: Okay. Could you say whether it has been on an improving trend lately?

Simone Margulies, President and CEO, Axfood: It’s pretty much the same, I would say. If you wonder if that is diluting the margin in Willys, that is not the case this quarter.

The case this quarter is a negative sales in like for like in Willys that is diluting the margin. Alex Bergendorf, Head of Investor Relations, Axfood: Erik, this is Alexander.

Just on that, obviously profitability in terms of the online sales is obviously lower than store sales. When online grow faster than our total growth or store sales growth, obviously that has dilutive effect on our margins. It’s small.

There are other effects that impact margin development more than that, obviously. Erik Sandstedt, Analyst, Kepler Cheuvreux: Perfect. Thank you very much.

Simone Margulies, President and CEO, Axfood: Thank you very much. Alex Bergendorf, Head of Investor Relations, Axfood:

Thank you. Operator: The next question comes from Richard Chamberlain from Bernstein.

Please go ahead. Richard Chamberlain, Analyst, Bernstein: Hello there. I’m interested in Hemköp’s outperformance.

I’m wondering, can you share anything about the drivers behind that? In particular, I’m wondering if there’s any impact of newer and refurbished Hemköp stores versus older stores, also whether you’re seeing any trading up from Willys to Hemköp. Simone Margulies, President and CEO, Axfood:

I’m very happy to get that question about Hemköp. Of course, we’re really glad to see the development in Hemköp. This quarter, they grew double the pace of the market, it’s the result, I would say, of a long-term job that they’ve been doing for a couple of years now, by starting to revitalize the brand also, and also developing new store concepts, having a high pace in modernizing stores, and also a high pace in developing both price worthiness and also the assortment.

I would say we’ve seen a good growth for Hemköp for a couple of years now. I think it’s a result of a long-term job that they’ve been doing now for quite some time. What’s happening is that the consumers are actually, how do you say, finding Hemköp stores and also recognizing the changes that’s been made.

I think it’s the result of all these different things, both that we had new modern stores with a new attractive store concept, focus on inspiration, meal solutions, and sustainability, and also price value. Richard Chamberlain, Analyst, Bernstein: Great. Thank you.

My other question is on City Gross, if I may. I’d be interested in hearing what some of the elements are in the trial store and how that will position City Gross to win on the customer proposition versus competitors. I guess second part of that is, if the trial store concept is a success, does that mean that another wave of capital expenditure will be needed to roll that out to the other City Gross stores?

Simone Margulies, President and CEO, Axfood: The concept is in a store in Linköping. We’ve done a job in this turnaround plan to also set a new brand proposition.

Now this new concept is to demonstrate the new brand with a focus on fresh produce, inspiration, food, and create a really inspiring food market, and also how to do that in a cost-efficient way in creating operational efficiency also in the store. If this, of course, as always, you have to do a lot of changes when you do a pilot store until it’s 100%. Now it’s up for us to evaluate it and do changes if there’s needed.

When we think it’s 100% correct, we will modernize stores. That will be as a part of our total expenditures. It’s a natural part in driving retails to modernize stores.

When we modernize the City Gross stores, we will then do it by this new store concept. Richard Chamberlain, Analyst, Bernstein: I see. Not necessarily a fast additional rollout program for the new concept of City Gross.

Simone Margulies, President and CEO, Axfood: No, no. Richard Chamberlain, Analyst, Bernstein: Wonderful. Thank you very much.

Simone Margulies, President and CEO, Axfood: Thank you very much. Operator:

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Rob Joyce from BNP Paribas. Please go ahead.

Rob Joyce, Analyst, BNP Paribas: Hi. Thanks very much for taking the questions. The first one, just back to those tactical measures.

I guess slight concern if we look back to 3Q 2024 when we saw that kind of 100 basis points margin decline that we kind of weren’t anticipating. Should we expect margins to be down in the third quarter again, even if we see a bit of like for like up until they start to recover with volumes after that? How are we thinking about margins in the third quarter at Willys, please?

Simone Margulies, President and CEO, Axfood: We don’t do any guidance on margins per concept. Of course, over time, we have a long-term goal for our group to reach 4.5%, and Willys, of course, is to be a part of that.

The tactical short-term initiatives is not the same as we did in the autumn 2024. It’s not the same thing we did, you mentioned, during the VAT cut. Now it’s more about targeted customer data insight-driven measures.

Rob Joyce, Analyst, BNP Paribas: Okay. I guess the question is why are they not ongoing, those type of measures, if they’re going to drive the top line?

Not the margin hit? Simone Margulies, President and CEO, Axfood: I tried to explain the first quarter, the VAT reduction in Sweden is a huge change for the market.

All the logics in how pricing, campaign mechanics changes overnight. Just to give you an example, if you have a good price for salmon campaigns one day, then the prices cuts 5.4% because of the VAT. Then the mechanics, both what is a good price, how is the campaign mechanics to work two, four, three, four, the day after.

That is what has changed when we meet today from when we met after first quarter. Now it’s more about calibrating and find these tactics, and to see that they become efficient. There’s been a huge change in the market when you cut the prices by 5.4%, and to create new attractive mechanics in the market.

That is actually- Rob Joyce, Analyst, BNP Paribas: Got you. Okay Simone Margulies, President and CEO, Axfood: what’s happening.

Rob Joyce, Analyst, BNP Paribas: Understood. Okay. Understood.

You have to evolve with the way the market’s moved. That makes sense. Second one is just in terms of that sort of volume, I guess the number X inflation we see, is it more mix driven or more unit driven, the sort of volume growth you think in the market right now?

Simone Margulies, President and CEO, Axfood: You mean if you take away the deflation, if it’s volume or mix, no? Rob Joyce, Analyst, BNP Paribas:

Yeah, exactly. Simone Margulies, President and CEO, Axfood: We’re not.

Rob Joyce, Analyst, BNP Paribas: If it’s units or mix. Simone Margulies, President and CEO, Axfood: it’s a mix of it.

I think it’s primarily driven by volume. Rob Joyce, Analyst, BNP Paribas: Okay, that’s helpful.

In terms of anything you can say on exit rates, are we seeing anything, any differences? Obviously Easter distorts things, but by the back end of the quarter, are we seeing better trends? Simone Margulies, President and CEO, Axfood:

We do not really comment month by month. It’s a quarterly performance we report. Of course this quarter we have some calendar effects also, with Easter beginning.

We do not really comment on monthly development. Rob Joyce, Analyst, BNP Paribas: Okay.

Thank you. Simone Margulies, President and CEO, Axfood: And that’s- Rob Joyce, Analyst, BNP Paribas: the final one. Simone Margulies, President and CEO, Axfood: written.

Rob Joyce, Analyst, BNP Paribas: Sorry. Yeah. Understood.

Thank you. Final one, just on the working capital impact from VAT, is it going to be slightly higher at year end? Are we thinking sort of SEK 500 million?

I’m getting to a SEK 500 million impact at year end. Is that about right? Anders Lexmon, Chief Financial Officer, Axfood:

No, the one-off that we took now, that’s not going to be higher in the rest of the year. Rob Joyce, Analyst, BNP Paribas: Okay.

Thank you very much. Very clear. Operator: There are no more questions at this time.

I hand the conference back to the speakers for any closing comments. Simone Margulies, President and CEO, Axfood: Thank you all for joining us today and for all the good questions, and I wish you a good summer and see you next quarter.

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