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that it is of limited importance to the overall financials. In our view, the adjusted financial indicators represent a more in-depth picture of the investment case.
· The gross margin improved 1.1pp y/y to 31.9%, on the back of the growing share of private labels and direct imports in the product mix to 48% of revenues in the core Russian market (+1.2pp y/y).
· The key SG&A lines normalised in 2Q21 vs. 2Q20, which was the lowest base for comparison, driven by stores which were closed in 2Q20 ramping up. As a result, SG&A (excluding rent and D&A) added 70bp y/y to 11.9% of revenues in 2Q21, with wage expenses adding 45bp y/y to 7.9% of revenues, while advertising expenses stayed generally flat y/y. Rent increased 90bp y/y to 8.1% of revenues due to the scheduled renegotiation of commercial leases.
· Adjusted EBITDA increased 24% y/y (RUB4.4bn), coming 5% ahead of our estimates, while the margin corrected 50bp y/y (to 11.8%). The adjusted bottom line reached RUB2.8bn, on the back of a RUB114mn FX gain and lower interest expenses (RUB464mn vs. RUB765mn a year ago).
· In 2Q21, net operating cash flow was RUB74mn (up 2.2x y/y), while investments stood at RUB1bn (up 3.1x y/y). Net debt declined 5% y/y to RUB23.7bn, with net debt / adjusted EBITDA of 1.3x vs. 1.6x a year ago.
· The conference call and webcast are scheduled for 16.00 (Moscow time), at +7 495 283 98 58 (passcode: 288543) and https://mm.closir.com, respectively. We plan to focus on the 3Q21 sales trends, how the roll-out is progressing and concerns over rising competition.
· Detsky Mir has returned the best sectoral performance so far in 2021, with the stock being flat YTD (all other listed retailers are down, with a blended stock price decline of 10%). We see the rebounding operational profile and aggressive dividend strategy as the prime tailwinds for Detsky Mir’s investment case.
Detsky Mir announced that CFO Anna Garmanova stepped down on 1 August. She is going to head the finance division of Ozon Express (Ozon’s
154 RUSSIA Country Report September 2021 www.intellinews.com