Delhaize's net profit growth (+72 %) disappoints analysts

Delhaize's net profit growth (+72 %) disappoints analysts

Despite seeing its net profit rise 72 %, Belgian supermarket chain Delhaize did not meet analysts' expectations. CEO Frans Muller hopes to improve his group's results with increased investments and please shareholders with higher dividends.

Below expectations

Delhaize's Belgian turnover reached 5.1 billion euro in 2013, a 3 % increase compared to 2012. Nevertheless, gross margins dropped to 20.2 %, because the chain had to invest in lower prices and an increased number of promotional activities in order to maintain its market share of 25.5 %.

 

Delhaize Group's 2013 worldwide turnover was 21.1 billion euro, 0.6 % more than in 2012 (+ 2.6 % if currency exchange rate fluctuations are taken out of the equation). Net profit grew 71.8 % to 179 million euro, but Delhaize had to burden a lot of restructuring costs and devaluations in 2012, which may skew this apparent large increase.

 

The result is a letdown in any case, as the lowest expectations from analysts were 165 million euro, with the highest at 472 million euro. REBIT  (Recurring Earnings Before Interests and Taxes) was at 753 million euro, a 4.2 % drop and slightly below analyst expectations (756 million euro).

 

"Positive momentum" ...

“Since joining as CEO in November 2013, I have gained a thorough understanding of our Group, of the different markets in which we operate and of our banners. Our Group has strong foundations, with leadership positions in nearly all our markets, a solid balance sheet, and passionate associates. Since the beginning of the year, we continue to have positive momentum at Delhaize America while facing challenges in Belgium and Serbia.”

 

The Dutch CEO refused to give concrete numbers for 2014, but he has divulged the group will be focusing on "maintaining or strengthening our local leadership positions" and cost efficiency. On top of that, "our capital expenditures will increase to approximately €625 million and we plan to open 180 stores. We intend to maintain or improve sales growth and continue to generate a healthy level of free cash flow.”

 

... but  "decrease in profitability"

Delhaize does however expect a "decrease in profitability" due to further investments at its American subsidiaries Food Lion and Hannaford. The former will focus on "Easy, Fresh and Affordable", while the latter wants to "further improve its price positioning". "Thus far in 2014, Delhaize America has experienced very solid sales trends, in part positively impacted by severe winter weather. This has also resulted in extra costs", the group stated.

 

Delhaize Belgium continues to struggle with the fierce competition and the "pressure on selling, general and administrative expenses. We have increased our focus on price and promotions as well as strengthening the quality and variety of our assortment. The foregoing elements will result in a decrease of our profitability, particularly in the first quarter."

 

To appease shareholders, Muller is giving them a dividend 11 % higher than last year, at 1.56 euro per share, even though that barely impressed as the share still dropped quite badly (- 7 % on the day of the announcement).

 

Delhaize Group has also rearranged its Executive Committee, as the Europe subdivision is scrapped while Dirk Van den Berghe, Delhaize Belgium's CEO, will become a member of the Executive Committee. Current CTO Nicolas Hollanders, who was also in charge of human resources, will leave the company and his tasks will be split across CFO Pierre Bouchut (who will take care of IT) and Marc Croonen, who will become Chief Human Resources Officer.

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