Sales growth leaves Delhaize confident

Belgian retail group Delhaize​ has raised its growth forecasts for fiscal 2003 after an excellent third quarter performance hampered only by adverse currency exchange rates.

The company, which operates 2,522 stores worldwide, said that its third quarter profits had more than doubled to €53.5 million, despite an exceptional charge of €14.4 million pre-tax related to hurricane Isabel. Sales, on the other hand, dropped 7 per cent to €4.7 billion due to the 12.5 per cent depreciation of the US dollar against the euro.

But the company remained bullish because of strong underlying sales growth in the US - where the company has recently struggled to perform well - and in Belgium, and because of a rapid improvement in margins despite continued investment in store refits.

Despite the decline in sales in the third quarter, the company said that organic growth had been good - 2.6 per cent compared to 2 per cent a year earlier - helped by a recovery at the Food Lion and Kash n' Karry chains in the US, the hardest hit by a downturn in consumer spending there.

This, and continued strong sales at the Hannaford chain, contributed to a comparable store sales growth of 1 per cent for Delhaize America, the company said. In addition, like-for-like sales growth in Belgium was 5.7 per cent.

"Our excellent third quarter improvement demonstrates the success of our commitment to deliver systematic improvements to our business,"​ said Pierre-Olivier Beckers, president and CEO of the Delhaize Group.

"Our results confirm our sales momentum in the US and our good margin management at all our key banners. We are particularly pleased with the US comparable store sales growth of 1 per cent due to the success of sustainable sales growth initiatives. The sales growth and continued cost discipline enabled us to increase our profitability despite continued reinvestments in our price competitiveness and in other sales building activities."​

Sales for 2003 as a whole are now expected to be 4-4.5 per cent higher than in the previous year, Beckers said, compared to initial estimates of 2-3.5 per cent, which, at constant exchange rates, would put turnover at €18.8 to €18.9 billion. Profits should be around €360-376 million at constant exchange rates, some 25-30 per cent higher than in 2002.

Job cuts and store closures at the Food Lion chain in the US will cost the company in terms of exceptional charges this year, but the streamlining of that business appears to be paying off at least, with operating costs declining as a result of the various cost cutting measures introduced there.

Operating profits rose by 12.2 per cent to €194.9 million, but would have been 25.5 per cent higher at constant exchange rates. The strong growth reflected the recovery from the poor performance in 2002 when US operations were first impacted by the slowdown of the economy and reorganisation costs.

The restructuring is also helping improve free cash flow, which since the start of the year has reached €270.4 million, all of which has been used to reduce the company's debt levels to €3.3 billion.

US sales during the third quarter reached €3.4 billion, up 1.5 per cent on the year before, the fourth consecutive quarter of improvement as a result of the restructuring at Food Lion and Kash n' Karry. Operating profit increased by 15.6 per cent to €156.8 million.

Sales in Belgium were up 6.6 per cent during the quarter to €914.3 million and helped by the addition of 22 stores compared and comparable store sales grew by 5.7 per cent. Despite investments in prices - the main driver of same-store sales growth - operating margins at the Belgian units improved considerably (from 2.3 per cent to 4.5 per cent) , in turn contributing to operating profits of €40.9 million (up from €19.6 million in 2002).

The southern and central European operations (Greece, Czech Republic, Slovakia and Romania) saw sales grow by 1.0 per cent to €283.4 million. Weak summer sales at Alfa-Beta in Greece and a poor performance from Delvita in the Czech Republic and Slovakia, exacerbated by price deflation all contributed to the low growth rate. But operating margins at all the businesses improved, contributing to operating profit growth of 15 per cent to €5.7 million in the third quarter.

Delhaize is rumoured to be considering the sale of one of its Asian businesses - Stop n Save in Singapore - a move which some observers believe could see it withdraw from Asia altogether. Its business there remained in the red during the third quarter, with operating losses of €1.2 million despite a slight rise in sales to €54.2 million. But the company said that local currency sales growth had been good during the quarter, so an imminent withdrawal from that market is unlikely.