Lidl profits under pressure

Lidl has seen its net profit fall by a quarter to 1.64 billion euros last year. To make matters worse, rising interest rates seem to make any speedy improvement impossible as well.

Same reasons

To be precise, it is the Lidl Stiftung, the supermarket chain’s holding company, that saw its net profit fall by almost 500 million euros to 1.64 billion euros in the financial year to 28 February. That amounts to a profit margin of just 2.0 %, Lebensmittel Zeitung calculated.

Lidl recorded net sales of 81.8 billion in the same period, but that does not show the full picture, as the company only partly includes sales from Germany and France into these figures. Earlier, Lidl estimated consolidated annual sales at 114.8 billion euros.

The reasons for the fall in profits are almost universal: costs for energy, transport, procurement and financing rose sharply last year. Due to these higher costs, gross profit rose by only 10 %, despite a 22.6 % increase in trading volume. In short, Lidl failed to pass on three billion euros in price increases to consumers last year.

The cost of debts

Yet it is mainly financing costs that play a role: last year, the retailer paid no less than 360 million euros in interests, especially as net financial debt rose by more than a third to 14.8 billion last year as overflowing non-food warehouses and continued investments cost the company dearly.

As interest rates continue to rise, recovery will not come easily. Lidl is said to be deliberately slowing down its expansion this year and even cutting costs, Lebensmittel Zeitung reports. A lot of management changes are also happening at the moment and the chain is also watching its selling prices. In other words, the turmoil is palpable.