Bloomberg News

Ahold Fourth-Quarter Profit Surges 75% on Grocery Revenue, Cost Reduction

March 01, 2012

Royal Ahold NV (AH), the Dutch owner of Stop & Shop grocery stores, said sales growth has eased in recent weeks and warned of “another challenging year” as consumers focus on value and competition remains intense.

“We clearly have seen that there is slower growth of the first couple of weeks in the markets we are in,” Chief Executive Officer Dick Boer said on a conference call with journalists, citing economic conditions in Europe and the effect of record-high fuel prices in the U.S.

Shoppers are holding back on spending, and the grocer is responding with promotions, value-tiered lines like Euroshopper in the Netherlands, and offering “market prices” for fruit and vegetables to lure customers. The European Commission predicts that the region’s economy will shrink this year.

“There are some clouds as Ahold has warned of a likely difficult first quarter, and this may weigh on the sentiment of otherwise solid results,” Matthew Truman, an analyst at JPMorgan Cazenove with a “neutral” rating on the stock, said in a report. “Whilst in a cleaner position than most, is unlikely to be immune from the weakening macro conditions.”

Ahold fell 0.6 percent to 10.32 euros at 10:18 a.m. in Amsterdam trading. The stock is down 0.9 percent this year.

‘Another Challenging Year’

Net income advanced to 270 million euros ($360 million) from 154 million euros a year earlier in the fourth quarter, the Amsterdam-based company said in a statement. Analysts expected net income of 253.5 million euros, according to the average of six estimates in a Bloomberg survey. Sales rose 4.5 percent to 7.3 billion euros, Ahold said in January.

“We expect 2012 to be another challenging year for the food retail industry,” Chief Executive Officer Dick Boer said in the statement. “The macro-economic environment means that consumers still continue to look for value and competition will remain intense.”

Chief Financial Officer Jeff Carr said he wouldn’t rule out future share buybacks, though he will continue to invest in reducing debt and improving returns to shareholders. He also said the grocer may consider taking ownership of operating leases and it commits to reducing net cash to 1 billion euros.

Acquisition Strategy

The grocer will mostly target acquisitions in adjacent countries, and will also consider “more mature” emerging markets with high population densities and growth, Boer said. “In the markets we are present we still feel quite some opportunities to grow our business” in the U.S., he added.

Pick-up points for online orders are planned for the second half in Europe with some open in the U.S. already, the CEO said.

Boer, who took the helm in March 2011, is planning to boost Ahold’s online business, expand in Belgium and add convenience stores to reverse slowing sales growth. Ahold said Feb. 27 it plans to acquire online retailer Bol.com for 350 million euros to boost Internet sales.

Ahold, which owns Albert Heijn stores in the Netherlands, also plans to cut costs by an additional 350 million euros over three years and increase the proportion of earnings paid as dividends. For 2011, the company is planning a payout of 40 cents a share, a 38 percent increase.

The company’s Giant Food Stores agreed to buy 16 Genuardi’s outlets from Safeway Inc. (SWY) for $106 million in January to expand in the Philadelphia area.

To contact the reporters on this story: Sarah Shannon in London at sshannon4@bloomberg.net; Maaike Noordhuis in Amsterdam at mnoordhuis@bloomberg.net

To contact the editor responsible for this story: David Risser at drisser@bloomberg.net


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