+ Same-store sales back to growth. After four quarters of decline, we estimate same-store sales rose 1.5% YoY in 2Q23 (1Q23 -3.6% YoY). We believe market share gains and household budgets returning to home dining drove the improvement in same-store sales.
+Gross margins climb to record levels. 2Q23 gross margins rose to a record 30.6%. The drivers to higher margins were leaner inventory relative to peers (especially in fresh products) and lower purchasing costs. The supply chain was less disrupted and fuel costs were falling. Sales contribution from private labels and fresh is relatively stable as a percentage of sales.
– 2Q23 operating expenses jumped 13% YoY. The re-contracting to higher electricity expenses and increased wages, caused operating expenses to rise 13% YoY or S$8mn. Opex to revenue nudged up 1.3% points to 20.1%. Higher wages from the progressive wage model and tight labour conditions will keep fixed costs elevated. An offset will be the lower variable wages or staff bonus.