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Thank you for joining us to discuss Lenta's fourth quarter sales and operating results. Firstly, let me introduce myself. My name is Maria Rybina, and I'm the new Head of Investor Relations Department in Lenta. Please feel free to find my contacts in our website in case we have not been in touch yet. I look forward to an opportunity to working with you on IR-related issues. With me to review the results today are our CEO, Herman Tinga; and CFO, Rud Pedersen. Please note that the announcement and presentation are also available on our website at lentainvestor.com. After our remarks, we will be happy to answer your questions. I will now turn the call over to Lenta's CEO, Herman Tinga.
Thank you, Maria. Good day, everyone. Thank you for joining us. I would like to make clear that I'm not satisfied with our performance in the fourth quarter and the full year. You will have seen from the announcement that our retail sales growth was flat in the fourth quarter. First of all, we continue to see economic effects and impacts from our intense competition. We also saw a significant decline in our nonfood sales. While it represents a relatively small part of our business, it still have a meaningful impact on our performance. On top of that, there was an impact from store closures this year. Before taking you through more details of Lenta's operating results, I would like to hand over the floor to Rud to update you on corporate development.
Thank you very much, Herman, and good day to everyone. Earlier this month, we announced that the company started its Redomiciliation process. Consequently, in December, we advised the relevant authorities to continue the incorporation of Lenta in Cyprus. The Redomiciliation will become effective once we receive a certificate of temporary resident registration in Cyprus. We expect that to happen shortly. We also announced an intention to change the depository bank from Deutsche Bank Luxembourg to its affiliate Deutsche Bank Trust Company in the U.S. I'd like to mention to our GDR holders that none of these corporate actions will affect the ordinary course of trading of the company's GDRs.And with that clarification, let me hand back to Herman to talk about our trading.
Thank you, Rud. So now I'd like to proceed with the discussion of our operating results for the fourth quarter. The total sales has declined by 1.4%, due to a decline in our wholesale business and a flat growth of retail sales year-over-year. Three main factors that impacted our retail sales performance during the period were, first of all, declining like-for-like sales with a significant negative contribution from our nonfood sales; second, expected slower growth in our selling space; and third, negative impact from store closures in 2019. Let me provide a little bit more details on this. In 2018, we decided to slow down expansion and focus on improving our returns. This year, we decided to run a review of the performance of each individual store to identify those which have low potential to reach expected returns. Based on this result of this review, we decided to close 7 supermarkets and 3 hypermarkets in 2019, which allowed us to improve our store base and focus on profitability in other locations. As a result, we have now relatively stable selling space growth and feasible impact from store closures on our retail sales. We estimated this impact at RUB 900 million in the fourth quarter and RUB 2 billion for the full year. Like-for-like sales declined by 3.6%. I'd like to remind you that Lenta reports both total and like-for-like sales, excluding VAT. Like-for-like customer traffic declined by 1.8%. The things we have seen in the previous quarters continued in the fourth quarter as well. The number of new customers, however, have been growing in both products. Positive customer inflows was seen on both new and like-for-like stores, and we're pleased with the fact that Lenta continued winning customers, thanks to our attractive assortment. However, this was not enough to compensate the decline in the frequency of customer visits. We also see that like-for-like ticket declined by 1.9%. Like-for-like ticket declined for the first time since the third quarter of 2018, which was a result of weaker growth in average selling price and a decline in items to the customers' market. Average selling price decelerated compared to the previous quarter, mainly due to higher internalization and slower trading effects in December. For the second consecutive quarter, we saw a significant decline in our nonfood sales. Like-for-like nonfood sales decreased by 15.2% in the fourth quarter. These results came on a higher base of 2018 when we achieved notable growth in our nonfood sales due to our successful assortment innovation in 2017 and effective promo-campaigns. Part of our new assortment was a more higher-priced levels and even premium category. While it was creating the market in 2018, it was not in line with the purchasing power of our clients in 2019 due to a weaker macro environment. And this is definitely a challenge, and we will continue working on assortment, turning this time around and work on our offer proposition in nonfood. Looking at promotional activity, some remarks on the key driver of our share of expansion. The fourth quarter is traditionally a period, of course, of higher promotional activity in the market due to the holiday season. This year, this came along with low inflationary environment in a country with slower growth of food prices. Promo share increased both the previous quarter and to the previous year. However, staying below historically high promo shares that we record in September, we launched some successful promo-campaigns in November and December as well as various effective in-store hypermarket events. We saw, of course, the impacts of our initiatives and that was expected notable in November with strong retail sales growth in that particular month. If you look at the level of our promo share, it came down in January if you compare with the third and the fourth quarter. But if you compare with January last year, it's still a bit higher. Let me now go in more detail separate from hypermarkets and supermarkets. First one with the hypermarkets in the fourth quarter. Retail sales declined by 0.7% in the fourth quarter. We closed 3 hypermarkets this year. And according to our estimates, it's based on negative contribution of around RUB 600 million in the fourth quarter and RUB 1.2 billion for the full year. Like-for-like sales declined by 4.3% due to both like-for-like negative traffic and like-for-like ticket. While like-for-like traffic dynamics did not change much compared to the previous quarter, our like-for-like average ticket turned negative of around 1.2% due to more intensive form of ticketing and lower trading up effects in December. We are more satisfied by the performance of our supermarkets. The supermarket performance, we see that total sales rose by 7.8% year-on-year driven by like-for-like sales growth of 4.7%, while it was partly offset by a decrease in selling space as we closed 4 stores on net basis this year. The performance was driven by strong inflows of new customers combined with declining ticket due to increased promotional activity during the quarter. We continued to improve our offering in terms of assortment and marketing and communication, and we see that customers respond positively to our entities. And last, also a few words about our wholesales operations. As we've previously announced, we expected the effect of a decline in our wholesale starting to have less impact on the fourth quarter of 2019. If you look at now, what happened in the fourth quarter, the sales declined by 37.7%, which is substantially lower compared to the 2019 average. The negative dynamics has been slowing down throughout the quarter. We see a decline of around 16% in December. Let me also update you on our activity in e-commerce. During the previous announcement, we started to highlight our key things in online initiatives, which we consider as an important channel in communication with clients. These projects allow us to get more knowledge on the potential of the market without investing significant amount of capital. First of all, we continue to partner with different companies, platforms across many of Russian regions. And at the moment, we cooperate with a total of 16 online shops. We added 2 more shops since the announcement of the last quarter and extended operations to 30 days. In 2019, we have recorded approximately 1 billion of sales to this channel coming for -- from 400,000 online orders. This is just slightly above 0.2% of our total retail sales for the full year 2019. However, we believe in the potential of the online market in combination with our strong physical footprint. I'm also proud to announce that in November last year, we finally have our own delivery online project, which we call [ Lentaska ], aims to provide customers with basic necessities with 15, 30 minutes delivery. You'll see that we opened several small [indiscernible] stores of around 100, 150 square meters in the urban areas, which collects the supplies from our DCs, hypermarkets and other few suppliers. The store is limited to around 1,500 SKUs and have mainly focuses on fresh and ripe fruit as well as ready-to-eat food. At the moment, we are piloting it in 2 districts of Moscow. That's, for the moment, the update. I would like to hand you over to Rud to talk about our expansion development.
Thank you very much, Herman. We made our guidance to open 8 hypermarkets and 3 supermarkets in 2019. Two supermarkets and 4 hypermarkets were opened in the fourth quarter, including reopening of a hypermarket in St. Petersburg, which has been disclosed due to a fire effect in November 2018. Let me put a few words on the last mentioned store. We reopened it in a brand-new concept with additional services to provide better shopping experience to our customers. We redesigned the layout to the store to meet various customer shopping missions. We made an accent on efficient presentation of our hero categories, and we filled the store with innovations like contrast and shelf lighting as well as price checkers of the latest technologies. We started to operate another of the older stores in Saint-Petersburg using features of the new concept, and we see a potential for further in-store improvements across our hypermarkets. We'll provide you with our opening and closing guidance for this year when we report the 2019 financials on February 25. I'd like to remind you that during our performance review, which we ran in the first half of 2019, we identified 9 hypermarkets and 7 supermarkets, which did not reach expected returns. All 7 supermarkets and 3 of the hypermarkets were closed in 2019. We successfully completed rent negotiations on 3 of the remaining hypermarkets, and we have taken a decision not to close these hypermarkets. This leaves us with 3 hypermarkets that we are still -- on which we are still negotiating with the landlords. We'll take a decision as and when those negotiations are over, but we would continue and close the respective 3 stores. Please note that we have no further plans to close hypermarkets than those previously mentioned. Please also note that we have no further plans to close supermarkets than those already closed in 2019. And with that clarification, let me hand back to Herman for a few closing remarks.
Yes. Thank you, Rud. [indiscernible] tough for us, but overall, as you want them looking into 2020. Our sales were largely impacted by our results in nonfood, but we have a [ key takeaway ], and I think it'll improve in a short-term kind of effect. Plus, we see several promising achievements that we did in 2019. We have positive dynamics in total and like-for-like sales of our fresh food. All our [indiscernible] categories demonstrated strong like-for-like sales growth in both quarter 4 and full year 2019. Looking at [indiscernible], it also demonstrated strong total and like-for-like sales growth last year. Another 1,200 new SKUs were launched on top of the 2,400 SKUs already launched during the years 2017 and 2018. We also reopened, as Rud mentioned, our hypermarket in St. Petersburg that we consider as our flagship store, and we are testing the latest concept and technologies to decide later what we can roll out over our network. We are pleased with the results of our supermarkets that we achieved, but -- despite the decision that we closed 7 stores this year and the remaining became more profitable. We do not expect macroeconomic and competitive environment to ease. We will be working on improvements in our customer value proposition and personal communication in both hypermarkets and supermarkets. Our team has started to deploy our new initiatives for this year to improve our customer offering. Last but not least, we continue to work on our operational efficiency and on the level of company's level. Thank you for listening.
Thank you for listening, everyone, and now we look forward to your questions. Margaret, we can start the Q&A session.
[Operator Instructions] There are no questions at this time. And we can now take a question from Egor Makeev from Raiffeisenbank.
I just want to ask you if you have more clarity of when the new strategy may be ready and, well, probably you could share with us some of your thoughts about it then, about what can be included in it.
Good afternoon, Egor. Thank you for your question. I cannot, let's say, disclose at the moment what elements are part of our strategy, what we are working on at the moment. We are waiting intensively the description with, let's say, the main shareholder, Mr. Mordashov and Severgroup. And we expect that we will finalize the strategy in the second quarter. So we can either furnish it in the second quarter or we might have to take the decision on our Board meeting in July. So that's, at the moment, the timing we are looking.
[Operator Instructions]
Margaret, if there are no more questions, I think we conclude the call. Thank you, everyone, for participating.
Thank you.
Thank you.
Bye.
That concludes today's conference. Thank you for your participation. You may now disconnect.