Tags: EU | Netherlands | Earns | Ahold

Grocery Operator Ahold's Profit Drops on Deflation

Thursday, 04 Mar 2010 12:50 PM


Royal Ahold NV, the Dutch owner of the Stop & Shop and Giant supermarket chains in the US, reported an 8.2 percent fall in profit for the fourth quarter on Thursday.

The company said sales and margins were hit by deflation.

Net profit was 267 million euros ($365 million), compared with 291 million euros in the same period a year earlier. Sales rose 3.3 percent to 6.80 billion euros, mostly due to growth at its Dutch stores.

"Sales and margins continued to be impacted by deflation, trading down and increased promotions," Chief Executive John Rishton said in a statement. Trading down means customers preferred cheaper brands. More promotions means Ahold offered more bargains to attract customers, which hurts the company's margins.

Rishton noted that while operating margins fell to 5.4 percent from 6.1 percent a year ago, the company grew volumes and market share in both the U.S. and Netherlands.

Sales were down 1 percent to $5.73 billion in the United States.

In the Netherlands, where Ahold owns the dominant Albert Heijn chain, sales rose 12 percent to 2.49 billion euros.

Ahold said it has paid down net debt to 717 million euros from 1.18 billion euros since October. The company launched a 500 million euro share buyback plan and proposed a 28 percent increase in its dividend for 2010, to 0.23 euro per share.

"Ahold's earnings came in ahead of expectations on a very strong performance in the US, again underlining the company's success in turning the business around," said SNS Securities analyst Richard Withagen in a note on the earnings.

"In addition, the dividend increase and share buyback are a positive surprise and show Ahold's confidence in the future." He repeated a Buy advice on shares.

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