-- Profits fall due to margin pressure
-- Intense price competition will remain throughout 2012
-- Current margin levels will continue in 2012
-- Sales trend is improving during 1Q and into 2Q
AMSTERDAM--Retailer Royal Ahold NV (AH.AE), which runs the Stop & Shop and Giant supermarket chains in the U.S., Wednesday posted a slight fall in first-quarter net profit as intense price competition weighed on margins.
Ahold expects 2012 to be challenging, with price competition continuing and consumer spending under pressure, said Chief Executive Mr Dick Boer, although he added that he's encouraged by the improving sales trend in the second quarter. He expects the current low margin levels to continue as Ahold keeps investing to maintain low prices.
The company is outperforming Belgian rival Delhaize Group (DELB.BT) in the U.S., even though its flagship chains have faced fierce competition as retailers battled to lure increasingly price-sensitive customers. Delhaize, like Ahold, makes more than half of its sales in the U.S., but Ahold gained market share there during the first quarter with increased promotional activity. The company doesn't give a figure for its U.S. market share.
In the Netherlands, which accounts for a third of Ahold's sales, the retailer is suffering from low consumer confidence as shoppers grapple with the government's austerity measures, although it managed to maintain its market share. Its core chain, Albert Heijn, has around 33% market share, which is expected to grow due to the recent acquisition of 82 stores from competitor Jumbo.
Ahold said it is on target to deliver EUR350 million in cost savings for the next three years.
In the three months to March 31, the retailer's net profit fell 3.1% to EUR282 million from EUR291 million a year earlier. Analysts had forecast a rise to EUR305 million, according to FactSet.
Net sales totaled EUR9.71 billion, up 5% from a year earlier, short of analysts' expectations for EUR9.81 billion. Sales growth was a healthy 2.8% in the U.S. and a modest 1.2% in the Netherlands. Underlying margin dropped to 4.3% from 4.6% and operating result was down 6.3% to EUR416 million.
Analysts were disappointed with the numbers.
"The results are meager, but not dramatic given the intense price competitive market environment", said ABN Amro analyst Robert Jan Vos, who rates Ahold stock at hold with a EUR12 price target.
Richard Withagen from SNS Securities said the U.S. sales growth is disappointing and Netherlands growth weak. He rates the stock at buy, with a EUR11.50 price target.
However, analysts at Rabobank said they see room for the first signs of accelerating sales growth and stable margins in the second half. Rabo, which rates the stock at buy with a EUR12 target, said the shares are not overly expensive and offer a good buy in a troubled sector.
Ahold's sales and profits are expected to benefit from the consolidation of its recent acquisitions, online retailer Bol.com and 82 stores in the Netherlands from Jumbo.
Delhaize last month swung to a first-quarter net loss, which it attributed to charges related to store closures in the U.S. under its unprofitable Food Lion brand, as well as openings under its discount Bottom Dollar chain. Its volumes have taken a tumble after it raised prices at Food Lion in an effort to pass on cost inflation to customers, but improved in the first quarter from the fourth quarter of 2011. The Belgian company said underlying operating profit is this year expected to decrease by 15% to 20% at identical exchange rates compared with 2011--far below market expectations.
Ahold is in the process of putting its EUR2.6-billion cash pile to better use, with a focus on organic growth and acquisitions. It opens a fifth store Wednesday in Belgium, aiming for 10 by the end of 2012 and 50 in the next five years. It will open its first German store in the third quarter.
At 0800 GMT, Ahold shares were down 2.6% at EUR9.34, against the benchmark AEX index which was up 1.5%.
Write to Robert van den Oever at firstname.lastname@example.org
(END) Dow Jones Newswires
June 06, 2012 07:45 ET (11:45 GMT)
Copyright (c) 2012 Dow Jones & Company, Inc.