Delhaize Margins Fall As U.S. Savings Stall, But Sales Rise

Date : 08/05/2011 @ 4:07AM
Source : Dow Jones News
Stock : Supervalu Inc. (SVU)
Quote : 16.33  0.0 (0.00%) @ 5:07AM

Delhaize Margins Fall As U.S. Savings Stall, But Sales Rise

Etablissements Delha (NYSE:DEG)
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Belgian supermarket retailer Delhaize Group (DEG) Friday said second quarter margins suffered as it failed to offset price cuts in its key U.S. market with projected cost savings.

The U.S. market, which accounts for more than two thirds of Delhaize's revenue, did however see comparable sales growth, and the company said it expects operating margins to improve in the second half.

It's been forced to cut prices in the intensely competitive U.S. market in an attempt to lure increasingly price sensitive customers but had expected cost savings to come through in time to offset the hit to margins.

"Despite the slight delay we are experiencing in the U.S. category management and supply chain savings, we are confident that the second half of the year will show an acceleration of our revenue and profit momentum," said Chief Executive Pierre-Olivier Beckers in a statement.

Analysts were expecting an improvement in margins compared to last year when the challenging U.S. economy led the retailer to cut its full year outlook due to sluggish consumer spending and inflation.

Shortly after markets opened, Delhaize shares were down 2.6% at EUR45.69, while the Belgian index was down 2.8%.

Net profit for the second quarter rose 2.6% on lower taxes and financing costs, while group sales dropped 3.9% to EUR5.1 billion due to a weaker dollar, which was down 11.7% on average against the euro during the quarter compared to last year.

Organic revenue rose 3.9%, the highest growth rate since the second quarter of 2009.

In the U.S. where the retailer is active through its Food Lion, Hannaford and Sweet Bay chains and competes among others with Ahold NV's (AH.AE) Stop&Shop chain, Wal Mart and Supervalu Inc. (SVU), revenue rose 4.3% to $4.9 billion, driven by new stores contribution, higher retail inflation and the positive calendar impact of Easter, the company said.

Operating margins for the group fell to 4.1% from 4.3% a year earlier. U.S. margins dropped to 4.2% from 4.5% a year ago, offsetting higher margins in other regions. In Belgium revenue grew 1.7% to EUR1.2 billion, while margins rose to 5.2% from 4.8%. In Southeastern Europe and Asia revenue was up 7.6% to EUR493 million, while the operating margin rose to 3.4%.

- By Robin van Daalen; Dow Jones Newswires; +31 20 571 52 01;

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