When life quickly becomes more expensive, consumers flee to shops where the products are still affordable. In the year in which inflation rose to record levels, bargain store chain Action therefore performed “exceptionally well”, financial chief Joost Sliepenbeek noted on Thursday when the annual report was published. Never before has the Dutch company been as profitable as in 2022.
Some of the results that Action presented in the report were already known: at the end of January, the discounter from Zwaagdijk in North Holland published all its turnover figures. Sales rose to almost 8.9 billion euros last year, an increase of about 30 percent on an annual basis. Most of the financial details, however, are usually reserved for the company in its annual report.
For example, Action (80,000 employees) announced on Thursday that its operating profit rose by no less than 45 percent last year, to more than 1.2 billion euros. The profit before tax and one-off windfalls or setbacks therefore rose much faster than in previous years, Sliepenbeek noted. In the past five years, operating profit increased by an average of 21 percent.
This increase can partly be explained by the higher sales, but Action also performed well in a relative sense. For every euro that ended up in the cash drawer, the company kept 13.6 cents in operating profit. Last year it was still 12.1 percent. The profit margin thus reached the highest level in the thirty-year history of the explosively growing retail chain.
High profit margin
The rising margin is striking. Most retail chains and manufacturers saw their profits rise last year, but that was mainly because their turnover was higher. For the past two years they have been confronted with rising costs, which they pass on to their customers for a large part. Earning more than necessary is a sensitive issue: then the accusation that a company profits at the expense of the consumer threatens.
In a telephone conversation with investors, Action took ample time on Thursday to explain why profits rose in both absolute and relative terms. Because it is certainly not the case that Action raises prices more than necessary, said top woman Hajir Hajji. “Although we have raised prices, we are not charging everything. We have also absorbed part of the higher costs ourselves.” According to Hajji, the price difference with competitors has only increased in the past year.
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The average price of the more than six thousand Action products is now 2.20 euros, just under 8 percent more than in 2021. This increase is entirely due to the higher purchase price, according to financial chief Sliepenbeek. The fact that profit per product nevertheless increased, according to him, is partly because Action suffered less from lockdowns in 2022 and spent less on corona precautions.
280 new branches
The main reason, however, is that the company is getting bigger every year, and therefore more efficient, says Sliepenbeek. As of this month, Action is active in eleven countries. The discounter opened 280 new stores last year, bringing the total to 2,260. The growing network reduces the costs per product. For example, transport is becoming cheaper, now that the journeys from distribution centers to shops are getting shorter on average every year.
Action will also continue to expand rapidly in the coming years, because the discounter still sees room for 4,400 additional stores in the countries where the company is active. For each new location, Action loses about half a million euros, an investment that, according to Sliepenbeek, will be recouped within a year. That makes the expansion plans fairly simple, he says. “The expansion pays for itself.”
Action also shared the new growth goals for the next four years, as the ambitions in the current five-year plan were achieved well before the end. The targets are now extra high, said CEO Simon Borrows of investor 3i, the owner of Action. “We didn’t want to come up with another half-baked plan.”
Action wants to open between 1,300 and 1,400 stores over the next four years. Existing stores must also continue to grow between 5 and 10 percent. Borrows wants Action to “share the benefits of that scale with the customer,” he said. The operating result will only increase to a limited extent, to 14 cents per euro of turnover, he claimed.