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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 3.63 euros, or 10 percent, to 32.30 euros at 5:35 p.m. on Euronext Brussels, the lowest closing price since July 2003. The shares have lost 44 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.”
The expansion of Delhaize’s Bottom Dollar Food banner in Pennsylvania reduced the grocer’s operating margin in the U.S. by 60 basis points in the first quarter, which shrank to 3.7 percent from 4.7 percent in the same period a year earlier. Delhaize expects the full-year impact will be less than 60 basis points, Ron Hodge, who heads Delhaize’s U.S. business, said today on a conference call with analysts.
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, narrowed 86 basis points to 24.8 percent, reflecting U.S. price cuts and the lower profitability of the Delta Maxi DOO business in southeastern 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 more Bottom Dollar Food stores, its 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.
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