June 7 (Bloomberg) -- Royal Ahold NV, the owner of Albert Heijn supermarkets in the Netherlands, said profitability slipped at its Dutch stores in the first quarter as cost inflation increased at a faster pace than prices.
Underlying operating margin at the retailer’s domestic stores narrowed to 6 percent in the 16 weeks ended April 24 from 6.9 percent a year earlier, Amsterdam-based Ahold said today. Net income rose 6.2 percent, beating estimates, as a later Easter holiday boosted earnings in the U.S., where the company owns the Stop & Shop and Giant Landover chains.
Ahold fell as much as 2 percent in Amsterdam trading, the steepest drop in the Dutch benchmark AEX Index. The remainder of the year will be challenging as inflation continues and promotional activity intensifies, particularly in the U.S., Chief Executive Officer Dick Boer said in a statement.
“Ahold has felt the pressure from food inflation across Europe,” Natalia Grabov, an analyst at Verdict Research, said in an e-mailed comment. “This factor, combined with consumers’ continued demand for value, has meant that Ahold’s profitability in the region has suffered.”
Competitor Jumbo Groep Holding BV’s conversion of Super De Boer outlets to the Jumbo format “may have been an increasingly important factor, as Ahold confirmed that in Holland it did not pass on to consumers all of the supplier cost increases,” James Grzinic, an analyst at Jefferies International, said in a note.
Ahold fell 11 cents, or 1.1 percent, to 9.64 euros as of 10:24 a.m. in Amsterdam trading, erasing an initial gain of as much as 1.4 percent. The shares have slipped 3.1 percent this year, while U.S. rival SuperValu Inc. has fallen 10 percent.
First-quarter net income rose to 291 million euros ($425 million) from 274 million euros a year earlier, Ahold said. The average of 12 analyst estimates compiled by Bloomberg was 279 million euros. Sales gained 5.9 percent to 9.25 billion euros.
The quarter ended on the Easter weekend and therefore didn’t include the slow week that traditionally follows the holiday in the U.S., spokesman Jochem van de Laarschot said.
“The results in the U.S. are higher than expected,” said Alistair Wittet, an analyst at Citigroup Global Markets who has a “hold” rating on the shares. The performance in the Netherlands was “a bit soft,” he said, without elaborating.
Sales in the U.S. rose 7.4 percent to $7.6 billion, while the underlying retail operating margin in the country was 4.6 percent, up from 4.2 percent a year earlier. In the fourth quarter, the margin was 3.8 percent.
The timing of Easter added 1 percentage point to identical sales and 0.2 percentage points to operating margin, CEO Boer said on a conference call.
Ahold has been adjusting its product range at Stop & Shop and Giant Landover and stepped up promotions to win shoppers in the U.S., where Ahold got 45 percent of its revenue last year.
“We delivered solid results and increased volumes in all our markets despite challenging market conditions with customers continuing to focus on value,” Boer said.
--Editors: Paul Jarvis, Celeste Perri.
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