Germany: Lidl's profitability grows internationally
- DRC Discount Retail Consulting GmbH
- 9 hours ago
- 4 min read
Discount Retail Chain Lidl strengthened its profitability despite slowing sales growth. The discounter's international operations increased the net margin to 2.4% and achieved a record net profit of €2.3 billion in the 2024/2025 financial year. The increase in gross margin and the reduction in debt offset the pressure caused by higher labour and financing costs. Central and South-Eastern Europe became Lidl's most profitable region, generating almost half of the total profit.
Lidl has returned to higher profitability. After two years of turbulence, Lidl is once again on a more solid financial footing. According to recent data from the balance sheet published by the Lidl Stiftung for the financial year 2024/2025 (which ends in February), the Schwarz Group discounter increased its net profit margin from 2.1 to 2.4% in the reporting period. In absolute terms, net profit increased by more than €400 million to €2.3 billion.
Net income increased by 6.9% to €94.7 billion, marking the slowest growth since the beginning of the inflationary period, in the 2022/2023 financial year. The total figures are lower than the consolidated net income of the Schwarz Group of €132.1 billion, as the Lidl Stiftung does not include the full operations in Germany and France.
Profitability is recovering as margins improve
Behind the figures is a discreet recovery in two key areas. One of the two cost factors that have affected profitability in recent years, gross margin, improved by 0.7 percentage points, from 24.5 to 25.2%, growing almost twice as fast as net income. Before the onset of inflation, in 2021, this indicator was 26.5%.The second factor, net interest payments on loans, stabilized at a high level. Consolidated net interest expenses were capped at €762 million, after €752 million in the previous year. However, financing costs continue to weigh significantly on revenues, consuming around €600 million of potential profit, up sharply from just over €150 million in 2021 and before. In this area, Lidl has taken firm corrective measures: the discounter reduced its net debt by 20%, from €12.5 billion in 2023/2024 to €9.9 billion in the last financial year.Closely related to interest payments is capital locked in stocks. Lidl has also been working on improving inventory turnover. Although year-end inventories increased by about 15%, suggesting a slower turnover, the company notes in the report that "the average inventory level decreased by 6.9% and the average inventory turnover rate increased to 11.3", which indicates a more efficient management of flows, despite higher ending balances.
The increase in salaries tests Lidl's efficiency efforts
On the cost side, the positive effects of a higher trading margin were partially offset by a noticeable increase in personnel expenses, which increased by 0.4 percentage points to 8.8% of revenues. However, the previous level of 8.4% had been the best result recorded by the Lidl Stiftung in recent years. In 2021, personnel costs still accounted for 9.4% of net revenue.Since 2023, minimum and collectively bargained wages have risen faster than shelf prices in many European markets, leading to a structural increase in labor costs across the industry. Lidl, however, continued to implement cost control measures. During the reporting period, the discounter expanded the deployment of electronic shelf labels and self-service cash registers across Europe to increase operational efficiency. Therefore, improving the company's profitability mainly comes from strict operational discipline rather than increasing work efficiency.
Central and South-Eastern Europe remains a key pillar of profitability
Beyond the improvement at the group level, Lidl's profitability is anchored in Central and South-Eastern Europe, with the analyzed region stretching from Lithuania and Poland to Serbia. The nine markets included in the analysis generated €25.2 billion in net income, an increase of 10.9% calculated on the basis of average annual euro rates, representing 26.6% of Lidl Stiftung's consolidated sales. Their combined net profit of €1.0 billion accounted for almost 44% of the total gain. With a net margin of 4.0%, almost double the group average of 2.4%, the region clearly stands out as Lidl's profit engine in the international portfolio.In reality, the share of emerging markets in Europe in Lidl's operations would be even higher. The Czech Republic, usually a key contributor to Lidl's ETUCE operations, is excluded from the 2024 analysis because Lidl Česká republika changed its legal form in 2023, a change accompanied by a change in the reporting period, resulting in a shortened financial year of ten months. Full data for 2024 is not yet available. If the Czech results of 2022 were used as a benchmark, the region's share of the Lidl Stiftung's consolidated revenue would increase to almost a third, and net profit to more than half of total profit – further underlining the strategic importance of these markets in Lidl's European network.
Poland regional leader
Poland is Lidl's largest market in the region and the fourth largest in the group, after Germany, the United Kingdom and France. The country generated net revenues of €9.6 billion, representing an increase of 8.9% in local currency, and achieved a net profit of €390 million, corresponding to a margin of 4.1%.
Romania follows with almost 5 billion euros in sales, registering a 10.5% increase in revenues and a net profit of 245 million euros. With a margin of 4.9%, Romania, along with Croatia, is among the most profitable subsidiaries of Lidl.
The other markets included in the analysis – Slovakia, Slovenia, Croatia, Serbia and Lithuania – all show solid profitability and steady revenue evolution. Although Lidl has reduced investment in expanding its store network in some of these countries in recent years, Hungary and Bulgaria have continued to record double-digit growth rates in local currencies, underscoring the region's continued momentum.
Source: Sebastian Rennack and Modern Buyer
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