(Bloomberg) -- A price war between Polish supermarkets that has been raging since early this year is hurting profits at the country’s fastest-growing chain.
Shares in Dino Polska SA plunged as much as 14% after it posted its first-ever year-on-year drop in quarterly net income in the three months to June. Dino’s profit erosion was deeper than analysts had expected, even after estimates had been lowered following disappointing earnings from its larger rival, Lisbon-listed Jeronimo Martins SGPS SA.
Polish food retailers are facing headwinds from slowing inflation and an increase in the country’s minimum wage, that has boosted labor costs but so far failed to spur sluggish consumer demand. The price war launched by the largest chains such as J. Martins’ Biedronka and Lidl has forced Dino to cut prices to track discounters’ offers, putting pressure on its gross margin.
The “Dino growth model is now being challenged by competition,” Adrian Gorniak, analyst at Ipopema Securities SA, said by phone. The Polish consumer “needs to spend more and Biedronka has to stop the price war to see chances for improvement.”
Since its stock-market debut in 2017, Dino has widened its profits sevenfold, thanks to an aggressive store rollout in smaller Polish towns.
Until recently, the strategy of focusing on growth and skipping dividends has been praised by investors, with shares climbing as much as 14 times above the IPO price. However, margin erosion in recent quarters has prompted more caution, even as the retailer extended its reach. In fact, Dino said on Friday that it plans to accelerate the pace of store openings.
The retailer’s shares traded 9.5% lower as of 3:09 p.m. in Warsaw, on track for the lowest close since November 2022. The stock has lost 32% so far this year, while Warsaw’s WIG20 index advanced 2.3%.
The company’s management declined to comment during an earnings call on when they expect the price war to end. Chief Financial Officer Michal Krauze guided for further pressure on Dino’s profitability in the second half of the year, albeit lower than seen during the last quarter.
Krauze said that Polish consumers were no longer stocking up on goods amid bouts of deflation in supermarket prices, and are making thoughtful purchases which reduce overall demand. They’re also seeking to rebuild savings after the biggest spike in inflation in a generation, he added.
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