Axfood navigates the VAT-cut deflation storm: margin holds, but Willys' engine sputters
Sweden's halved food VAT turns the market deflationary; Axfood defends profit with stable margins and cost control even as its flagship hits a growth air pocket.
AXFO.ST · Earnings Call · 2026-07-15
A deflationary spring
Axfood's second quarter may be the first real test of Sweden's boldest consumer policy experiment: halving the VAT on food from 12% to 6% on April 1. The result was a market that fell into outright deflation, and yet the grocery group managed to grow earnings. That contrast is the heart of this report. The VAT cut was fully passed through to consumers, but it also pulled the price level down. As CEO Simone Margulies put it, “we delivered positive growth and increased earnings against high comparison figures in a market characterized by food price deflation” — Simone Margulies, President and Chief Executive Officer (CEO) · 2026-07-15. The mechanics were stark: the annual rate of deflation was -6.2% including VAT, and -0.9% excluding VAT, yet adjusted for deflation and a calendar drag, market growth was a robust 4.9%. Consolidated net sales grew just under 1%, but adjusted operating profit rose to SEK 972 million with the margin flat at 4.2%. The profit improvement came despite a SEK 40 million fuel-cost headwind and food price deflation. CFO Anders Lexmon flagged the cash-flow side of the VAT change: “During the second quarter, the cash flow was SEK -47 million, SEK 86 million lower compared to last year” — Anders Lexmon, Chief Financial Officer (CFO) · 2026-07-15. The working-capital drag from the VAT cut was about SEK 350 million in the first half — roughly half of the SEK 700 million negative swing — and should reverse only if the VAT is ever restored.A tale of two banners
Inside the group, the performance gap between Willys and Hemköp widened dramatically. Willys, the discount powerhouse, grew only 1% in total and -1% like-for-like — its margin still held at 4.2%. Management attributes the stumble to high comps from a 10.2% surge a year earlier and to the deflationary environment, rather than any weakness in the concept. The response is a new round of tactical measures: “it's measures to increase the traffic to the stores on a short term” — Simone Margulies, President and Chief Executive Officer (CEO) · 2026-07-15, as Simone Margulies explained when pressed by analysts. Hemköp, meanwhile, was the star. Retail sales grew more than 7%, with traffic, ticket value and market share all up, and its operating margin reached 5.4%. The chain's long-running store-modernization program is clearly paying off — a lesson that contrasts with the short-term tactical push at Willys.City Gross and the store-closure math
City Gross continues to narrow losses, posting an adjusted operating loss of SEK -11 million (margin -0.5%) versus SEK -25 million of items affecting comparability a year earlier. But like-for-like sales remain negative, and store rationalization is still ongoing. Two more closures were announced: Länna closed in late May, and Helsingborg will convert to Willys in the fall. Management reiterated its goal of breakeven in the second half of this year, but the store closure path remains front and center. A brighter spot is the new pilot store concept in Linköping, focused on fresh produce and operational efficiency. The trial is expected to be refined before any broad rollout.we still continue to have a very stable margin and increase our profitability, because in this climate where we have increased costs for salaries and for fuels that we single out, we wish some high growth, but still we can continue to increase our profitability and have a stable margin, which is important for us, of course.