Ahold First-Quarter Earnings Drop On Product Promotion Costs
Royal Ahold, the owner of the Stop & Shop and Albert Heijn supermarkets, has said that first-quarter earnings dropped due to product promotions in the US, as it faces increased competition from chains such as Wal-Mart Stores.
Underlying operating income fell 0.5 per cent to €390 million ($425 million), the Zaandam, Netherlands-based company said in a statement. On average, analysts surveyed by Bloomberg estimated earnings of €406 million.
On 12 May, the retailer said that it was discussing a potential merger with Delhaize Group, the Belgian company that operates the Food Lion chain in the US. A deal would create savings of as much as €600 million, according to analysts, helping deflect competition. Ahold is also upgrading stores to better compete, a process that has yet to fully pay off, said Joost van Beek of Theodoor Gilissen Bankiers NV.
“The further upgrade of the stores, so that the shopping experience improves and the assortment better fits customers’ desires, that process has been ongoing for 1.5 years, so in the stores where you’ve adjusted, you should eventually see some effect,” the analyst said by phone. “I don’t fully see that yet.”
Sales increased 15 per cent to €11.29 billion. Underlying operating margin fell to 3.5 per cent from 4.0 per cent in the same three months last year.
The margin dropped in part because of costs “to improve the customer proposition in the US, increased investments in our online businesses, and the integration of SPAR in the Czech Republic”, Ahold said in the statement.
Bloomberg News, edited by ESM