Delhaize's price competitiveness makes profits disappear

Delhaize's price competitiveness makes profits disappear

Belgian Delhaize Group has released its first quarter results with mixed feelings. Though turnover rose 8,6% to 5.5 billion euro, the most striking feature was the net result: a loss of 10 million euro, down from a net profit of 126 million last year.

Stores closing and lower margins

(in million €) Q1 2011 Q1 2012 +/-
Turnover US 3,422 3,527   +3.1%
(in $ -1.2%)
Turnover Belgium 1,154 1,191   +3.2%
Turnover SE-Eur+Asia    468    760 +62.4%
Turnover worldwide 5,044 5,478  +8.6%
Company profit
   222    189 -14.6%
Net profit
   126     -10    /

That decrease in net result was largely due to the costs of 'store network optimisation': Delhaize Group had attributed 167 million euro for that strategy – significantly more than the 136 million euro the net result dropped.

 

Moreover, profit margins were under pressure from another strategic choice: due to a focus on price competitiveness, margins dropped in each of Delhaize's three regions. While the margin remained more or less the same in Belgium (from 4.9% down to 4.6%), it plummeted in the US (4.7% to 3.7%) to create a worldwide drop of 4.4% to 3.5% - without showing any signs of improvement in the next few quarters.

 

+3% in Belgium and US, +62% on emerging markets

In home market Belgium, turnover rose 3.2% to 1.191 billion euro. On a like-for-like basis however, turnover went down 0.9%. Profit from Belgian activities went down 1.9% to 55 million euro, largely due to the fact that in Belgium wages are directly linked to the inflation.

 

A similar turnover rise in euro (+3.1%) was achieved in the United States, but only as a result of exchange rate fluctuations. In dollar, turnover fell 1.2% after the closure of 126 stores. Disregarding these closures, a small rise (+0.7%) was achieved in dollar as well.

 

The region 'South-East Europe and Asia' witnessed a huge (+62.4%) growth in turnover due to the acquisition of the Delta Maxi chain in August. Without the Serbian chain, growth still was “a lower double digit growth”, but Delhaize did not release the concrete result. Quite striking is the impressive rise of turnover in Greece, in a climate of a raging economic crisis.

 

Negative and positive forecasts

For the rest of the year, Delhaize expects a continuing negative influence on company results because of a number of strategic choices. Especially the focus on price competitiveness will keep pushing the margins down. As a result, company profit will be “15 to 20% lower at constant rates”, the Belgian group warns.

 

The austerity programme on the other hand is expected to have a positive influence on the company results – and, being successful, the programme will be implemented faster than expected. For the full year 2012, Delhaize had expected to cut 500 million euro in costs, but the group already realised 425 million worth of cost cuts in the first three months and announced that it will easily beat earlier expectations.

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