Bloomberg News

Delhaize Slumps as Price Cuts Squeeze Earnings: Brussels Mover

May 03, 2012

Delhaize Group SA (DELB), the owner of the U.S. Food Lion stores, fell to the lowest value in almost nine years in Brussels after forecasting earnings will drop as much as 20 percent and a decline in same-store sales accelerated.

Delhaize slumped as much as 12 percent to 31.49 euros on Euronext Brussels, the lowest intraday price since August 2003, and traded 11 percent lower at 31.84 euros by 9:44 a.m. The shares have lost 45 percent in the past 12 months, the fourth- worst performance of the 25 companies included in the Stoxx 600 Retail Index.

Operating profit before expenses and writedowns linked to store closures will fall 15 percent to 20 percent when not taking into account currency fluctuations, the Brussels-based company said today in a statement. Profit on that basis fell 17 percent to 189 million euros ($248 million) in the first quarter, missing the 204.7 million-euro average of seven analyst estimates compiled by Bloomberg.

“A very poor first quarter and the full year won’t be much better,” John David Roeg and Jan Meijer, analysts at ING Groep NV in Amsterdam, wrote in an investor note today. “From a regional performance, poorest performer was the U.S. where the underlying margin fell by 100 basis points.”

Price Cuts

Sales at U.S. stores open at least a year fell 0.6 percent in the three months through March, the biggest drop in more than a year and accelerating from a 0.4 percent decline in the prior quarter. In Belgium, same-store sales fell 0.9 percent, for a third straight decline. Delhaize’s gross margin, or the proportion of revenue left after subtracting costs of goods sold, shrank 86 basis points to 24.8 percent, reflecting U.S. price cuts and the lower profitability of the Delta Maxi DOO business in eastern Europe it bought last year in its biggest acquisition in a decade.

The grocer said it will extend price cuts this year in its Belgian supermarkets and Hannaford stores in the U.S. to retain customers and began repositioning an additional 250 Food Lion supermarkets at the end of March. The grocer is also adding Bottom Dollar Food stores, a lower-margin discount format, in the Pittsburgh area.

Delhaize cut its forecast for capital spending by 100 million euros to offset the decline in earnings, setting a target of generating 500 million euros of cash not required for reinvestment this year. That compares with 343 million euros in 2011, excluding the cash spent to buy Delta Maxi. Net debt fell to 2.51 billion euros from 2.65 billion euros at the end of December.

To contact the reporter on this story: John Martens in Brussels at jmartens1@bloomberg.net

To contact the editor responsible for this story: Jerrold Colten at jcolten@bloomberg.net


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