Iceland - Sarria Daily Comments 04/11/2021

Iceland reported Q2 22 numbers (19th June-10th September) this morning, and as guided, EBITDA has declined primarily due to top-line sales decline (comparing against a very strong Q2 21 quarter). However, as repeatedly pointed out, cost inflation from wages and supply chain costs has reduced Gross Profit margin from 5.5% to 3.4%. It should be noted, Iceland account for a majority of their costs at the Cost of Sales line. This was expected but it will be key to understand how much of the GP margin decline came from this cost inflation and how much was due to lower efficiencies from serving lower volume compared to the prior year. Additionally, Iceland state they have invested further in their distribution network which has also lowered GP margin.

- Despite the headwinds, Iceland continues to have sufficient liquidity and although CAPEX was higher due to the opening of new stores, ended the quarter with c.£120m of cash. Net debt will naturally fall through the remainder of the FY, but the Company has hinted at the possibility of bond buybacks if suitable opportunities arise.