Turnover investments put Ahold's quarterly result under pressure

Turnover investments put Ahold's quarterly result under pressure

Ahold's Q1 results dropped 0.5% compared to the same period in 2014, with its operational margin also under pressure. At 3.5 %, it is 0.5 % lower than before, a direct consequence of Ahold's efforts to strenghten its American and Czech positions.

Ahold optimistic, analysts expected more

Ahold is working on its presence in the important American market and online, which is why the retailer is optimistic about its first quarter performance, despite the impact on its results. Quarterly turnover grew nearly 15 % to 11.3 billion euro, mainly because of exchange rate fluctuations. If those are ignored, it would have managed a 1.4 % turnover increase. Excluding gas sales, turnover grew 3.1 %.

 

"We are encouraged by the positive momentum in our sales trend, despite the adverse timing of Easter. We have continued to respond to the changing needs of our customers, by making further price investments, increasing and improving our assortments, expanding our store network, introducing new formats and continuing to strengthen our leading online proposition", CEO Dick Boer said in a press release.

 

Ahold's profit numbers were lower than what analysts had expected. Net profit from continuing operations dropped 10.2 % to 211 million euro, much lower than analysts' expectations at 257 million euro. Ahold's total net profit grew a lot, but mainly because of Ahold's one-time 180 million euro write-off in 2014's first quarter.

 

Its operating income dropped nearly 9 % in the first quarter of 2015, to 346 million euro, which the company blames on higher restructuring costs and additional costs because of Ahold USA's staff shuffle. Its acquisition and integration of 49 Czech SPAR stores is also partly to blame.

 

Pressure on margins in USA and in the Netherlands

American net turnover, at constant exchange rates and excluding gas sales, was 0.4 % higher than in the first quarter of 2014. On a like-for-like level, turnover barely grew, merely 0.1 %. The underlying operational margin dropped 0.2 % because of pricier purchases and Ahold USA's decision not to foot the bill to the customer. To strengthen its American margins, Ahold USA wants to increase the market penetration for its private labels.

 

Ahold managed a 5.7 % turnover increase in the Netherlands, to more than 3.7 billion euro. Its like-for-like turnover grew an encouraging 2.5 %, as it had to concede 1.4 % in the first quarter of 2014. Operational margins still dropped 0.6 % to 4.4 %, which Ahold says is because of the higher costs related to the crystal glass savings program and higher retirement costs. Its underlying operational income dropped 6.7 % to 166 million euro.

 

Ahold continues online investments

Ahold's online performance is going strong, both at Bol.com and Albert Heijn online (ah.nl). It managed a turnover growth of more than 20 % online. Ahold is also doing well in Belgium, having opened its 30th store and growing turnover a lot. Regarding the merger talks with Delhaize, Ahold refrained from any comment. "Our goal is to grow to 50 stores in Belgium and that is our official goal in tha tcountry", Boer said when asked about the Delhaize talks in a conference call with analysts.

 

Ahold's additional investments in online, focused on its omnichannel strategy, has lowered Dutch margins 0.1 % compared to last year, Ahold said. For 2015 as a whole, Ahold expects to increase its online investments, which in turn will have its effect on the margins in 2015. The company expects 2015 margins to drop some 25 points.

 

Add higher retirement costs and Ahold expects Dutch margins to feel the pressure even more, ending up 40 to 50 points below 2014's level.

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