Delhaize Group SA, the owner of Food Lion supermarkets, plans to cut about 5,000 positions and expects a 2.4 percent drop in revenue as it closes stores in the U.S. and Europe.
Costs related to the closures will hurt earnings by about 205 million euros ($261 million) starting in the first quarter, the Brussels-based company said in a statement today. Closing 146 outlets and converting 64 others will cut the number of shops by about 4.3 percent and initially lower revenue by about 500 million euros, or 2.4 percent, Delhaize said.
“We are disappointed in the fourth-quarter revenues in the U.S. and Belgium,” Chief Executive Officer Pierre-Olivier Beckers said in the statement. “Consumers continued to feel pressured in the fourth quarter due to the macro-economic environment and this led to a reduction in spending. We also encountered an increase in competitive activity.”
Consumers continue to be hurt by high levels of joblessness in the U.S. and Europe. The U.S. unemployment rate, which was 8.5 percent in December, may continue to curb spending in the world’s largest economy, where Delhaize gets most of its revenue.
Delhaize lost 17 percent of market value in the past year compared with a 13 percent decline for the Stoxx Europe 600 Index. The stock rose 2.7 percent to 46.85 euros in Brussels yesterday.
Delhaize expects to record an impairment charge of about 120 million euros in the fourth quarter of 2011, which is related solely to the U.S. operations.
The store closures and conversions will have an “annual positive effect” on operating profit of 35 million euros to 40 million euros after completion, said Delhaize.
Beckers said Delhaize will improve its “price competitiveness” this year.
The food retailer will close 113 Food Lion, seven Bloom and six Bottom Dollar Food locations in the U.S., it said. The remaining 42 Bloom shops as well as 22 Bottom Dollar Food stores will be turned into Food Lion outlets.
Twenty stores in southeastern Europe will also be closed. Delhaize gets most of its revenue in the U.S., where it got 68 percent of its total 2010 sales of 20.9 billion euros, according to data compiled by Bloomberg.
In its home market of Belgium, the company, in addition to supermarkets, operates a home delivery service and started to offer online shopping, according to its annual report.
Growth Forecast Cut
Belgium’s central bank last month reduced its forecast for economic growth in 2012 to 0.5 percent, in line with the latest prediction by the Organization for Economic Cooperation and Development.
In last year’s fourth quarter, Delhaize’s revenue increased by 7 percent at identical exchange rates and by 7.6 percent at actual rates, the company said in its statement. The “difficult global macro-economic environment” hurt sales performance across the group, it said.
Delhaize ended 2011 with a sales network of 3,408 stores, according to the statement.
© Copyright 2014 Bloomberg News. All rights reserved.