LONDON (FNS) -- Argyll Group, the United Kingdom's third-largest food retailer, warned its profits will be cut by about $59.6 million, or 40 million pounds, this year because it will begin writing down the value of its stores.
Argyll, which owns Safeway, Lo-Cost and Presto here, is the first major U.K. food retailer to begin depreciating its store values.
Analysts said the move represents further evidence of an increasingly competitive environment in U.K. food retailing.
Sir Alistair Grant, Argyll's chairman, also said the group will slow its Safeway store development program this year.
It will cut capital expenditure to about $819.5 million from the planned $968.5 million. A further fall is expected next year, Grant said. Argyll revealed the changes in reporting a 5.9% rise in net profits to $234.82 million in the 28-week second quarter ended Oct. 16. Sales rose 10.9% to $4.69 billion. Currency conversions were made at the rate of $1.49 per pound. Safeway, the group's largest operation, reported a 20.7% rise in operating profits to $279.37 million from $231.39 million. Sales rose 12.9% to $3.79 billion from $3.36 billion. Fresh foods performed well, as did specialty departments, which include gas stations, in-store pharmacies and dry cleaners. New stores contributed about 12.7% of the sales increase, however, and same-store sales actually declined after accounting for inflation of about 2%. Safeway, in common with other food retailers, has cut the prices of about 200 private-label and branded products. It is stepping up the development of private label with introductions. Its private-label range now covers 4,600 lines, excluding fresh foods, Grant said.