2nd UPDATE: Ahold Continues To Beat Rivals In US

Another stand-out performance in the U.S. and euro moves against the dollar helped Dutch retailer Koninklijke Ahold NV (AH.AE) to a 3.1% rise in net profit in the second quarter, despite challenging market conditions.

In the U.S., where Ahold generates over half of its revenue, sales increased 5.5% to $5.5 billion with identical sales up 1.4%, 0.5% excluding gasoline. It again outperformed its main U.S. competitors: Wal-Mart Stores Inc. (WMT), the world's biggest retailer, reported a 1.4% decline in indentical sales, Belgian peer Delhaize Group (DELB.BT) a drop of 3.6% and Supervalu Inc. (SVU) a fall of 7.2% in the same period.

"We continued to grow sales, volumes and market share in the Netherlands and the United States. Market conditions remained challenging with high levels of promotional activity," Ahold's Chief Executive John Rishton said, adding he hasn't noticed a change in the competitive climate yet.

He said suppliers fund the largest part of its promotional activities, limiting the impact on Ahold's margins.

Ahold is better positioned than other U.S. players due to its strong presence in the North East of the country where Wal-Mart has less exposure, said Bernstein analyst Chris Hogbin. In addition, Ahold started lowering its prices in 2006, ahead of the recession and its competitors, under its Value Improvement Program. Meanwhile, a cost savings target of EUR350 million over three years helped to support profit margings.

Ahold is active on the U.S. East Coast through its Stop&Shop, Giant-Carlisle and Giant-Landover brands. Last year, it acquired 25 stores from Ukrop's Supermarkets Inc. in Virginia and in April it bought five Shaw's supermarkets in Connecticut from Supervalu.

Another struggling competitor, Great Atlantic & Pacific Tea Co. (GAP), known as A&P, recently reported a 7.2% drop in same-store-sales and said it needs to sell assets and refinance.

"We would be interested in buying some A&P stores," Rishton said, after A&P's German shareholder earlier Thursday said it is likely the U.S. retailer will be merged into a larger group in the long term. A&P operates 429 stores in the U.S.

U.S. consumers, still jittery about high unemployment, continue to load their baskets with discounted items and lower-priced private-label products.

Rishton said Ahold's share of private label products in U.S. stores is around 15% to 16%, but that it intends to increase this over time.

"In the U.S. we can learn a lot from our Dutch private label activities," which account for around 50% of sales, he said, adding that it can increase its private-label share in the U.S. at a maximum 2% a year.

Ahold's underlying operating margin in the U.S. was unchanged from last year at 4.8%, while Rishton said its U.S. market share improved in all states where it is active, declining to add further detail.

Rishton said it expects inflation to return to the U.S. in the second half of the year, but that in the current economic climate, with consumers remaining cost conscious, it will be hard to pass on inflation to customers.

Its domestic operation, Albert Heijn, reported a 4.4% rise in sales to EUR2.3 billion, helped by a football World Cup loyalty promotion and the success of the Dutch team in reaching the final which boosted sales by 1%. Stripping out store openings and closings, sales grew 3.5%, while it also gained market share, but Rishton declined to quantify the increase.

The underlying operating margin was unchanged from last year at 6.8%.

Second quarter net profit rose 3.1% to EUR202 million from EUR196 million a year ago. The figure was negatively impacted by a EUR47 million tax claim at Swedish retailer ICA AB (SD-ICA), in which Ahold holds a 60% stake.

Sales rose 10.8% to EUR7.1 billion, helped by the consolidation of the 25 stores that Ahold acquired late last year from U.S.-based Ukrop's Super Markets Inc. for around $140 million, and as the dollar strengthened against the euro. At constant currencies, sales rose 4.4%.

By 1418 GMT, Ahold's shares were down 0.2% at EUR9.64 in an overall higher Amsterdam market.

-By Anna Marij van der Meulen; Dow Jones Newswires; +31 20 5715 216; annamarij.vandermeulen@dowjones.com

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