Royal Ahold NV (AH), the Dutch owner of Stop & Shop grocery stores, said first-quarter profit unexpectedly dropped as consumers reined in spending on groceries amid higher unemployment in Europe and the U.S.
Net income declined to 282 million euros ($352 million) from 291 million euros a year earlier, the Amsterdam-based company said today. Analysts expected profit of 304 million euros, according to the average of nine estimates compiled by Bloomberg. Sales rose 5 percent to 9.72 billion euros.
“We expect 2012 to be another challenging year for the food-retail industry, with intense competitive activity and consumer spending under pressure due to economic uncertainty, particularly in Europe,” Chief Executive Officer Dick Boer said today.
Profitability fell in the U.S. as the company invested in price cuts to win market share, Boer said. Shoppers are holding back on spending as the European debt crisis worsens and the grocer is responding with promotions and cheaper private-label items. Ahold is also expanding into new countries such as Belgium to lift revenue and bought Internet retailer Bol.com this year to boost non-food sales.
“This certainly was a weak quarter and results came in lower than consensus,” said Richard Withagen, an Amsterdam- based analyst at SNS Securities with a buy recommendation on the stock. “Particularly, the U.S. performance was disappointing.”
The shares declined as much as 31 cents, or 3.2 percent, to 9.28 euros and traded at 9.34 euros as of 09:55 a.m. in Amsterdam trading, reducing the market value to 10.3 billion euros. The AEX index rose 1.4 percent.
In the U.S., where Ahold makes the bulk of its sales, underlying operating income as a percentage of revenue dropped to 4.1 percent from 4.6 percent. Revenue increased 2.8 percent to $7.8 billion.
“We have to play a very aggressive game on promotion in the U.S.,” Boer said on the call, adding that Ahold has increased its market share. With U.S. unemployment still at high levels, Boer said he is cautious for the rest of the year.
In the Netherlands, sales increased 1.2 percent to 3.3 billion euros. Sales growth was affected by a shift in holidays, mainly as a result of the timing of Easter, the retailer said. In the second quarter, identical sales growth for the company will improve from the first, Boer said.
Ahold, which owns Albert Heijn stores in the Netherlands and Belgium, has said it plans to cut costs by an additional 350 million euros over three years and increase the proportion of earnings paid as dividends.
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