Delhaize Takes $18.6M Charge

Delhaize Group here said last week that it took an impairment charge of $18.6 million for the value of 25 Sweetbay stores, indicating those locations are not meeting financial projections. Delhaize last year completed the conversion of its entire Kash n' Karry chain in Florida to the Sweetbay format, and has launched a more aggressive pricing program at the 106-store banner that the company

BRUSSELS — Delhaize Group here said last week that it took an impairment charge of $18.6 million for the value of 25 Sweetbay stores, indicating those locations are not meeting financial projections.

Delhaize last year completed the conversion of its entire Kash n' Karry chain in Florida to the Sweetbay format, and has launched a more aggressive pricing program at the 106-store banner that the company said is driving improvements.

“We have said that we are not profitable there yet, and that we continue to work our way towards profitability,” said Craig Owens, chief financial officer, Delhaize, in a conference call discussing fourth-quarter results. “We saw our sales step up pretty significantly, [and] operating expenses and shrink management improved significantly. So, we continue to be very optimistic about Sweetbay in the long term.”

As previously reported, Delhaize had strong sales results at its other U.S. banners, Food Lion in the Southeast and Hannaford Bros. in New England.

Pierre-Olivier Beckers, chief executive officer, Delhaize Group, said that there have been some indications of consumers “trading down” to lower-cost products, but it has not been a concern for the company.

“We also see consumers eating out less and coming out in our stores and buying the prepared meals and some higher-end frozen food products,” he said. “So we think, at this time, it's difficult to fully read what is happening in the market.”

Beckers also said a remerchandising of fresh departments at 200 Food Lion stores to conform to a specific customer cluster drove comp-store sales for the total store that were double those of other Food Lion locations. As a result, the company is revamping dry grocery merchandising to meet the needs of that cluster at those same 200 stores, and will begin to adapt the merchandise at another 75 stores to another cluster.

After reporting comp-store sales growth of 3.8% in the U.S. for 2007 — the best performance in 10 years, the company said — Delhaize projected U.S. comp-sales growth in the range of 2.5% to 3.5% for 2008, weighted toward the end of the year.

The declining value of the U.S. dollar led Delhaize to post a 0.5% decline in net income for the fourth quarter, to about $175.2 million, on a 3.4% decline in sales, to about $7.2 billion. At identical exchange rates, net income was up 7.5% on a sales gain of 5%. For the year, net income rose 16.5% (23.5% at actual rates) to about $630 million, on a sales decline of 1.4% (up 4.9% at actual rates), to about $29.1 billion.

In the U.S., fourth-quarter operating profit was up 1.3%, to $268.1 million, on a 5.1% increase in revenues, to $4.59 billion. For the year, U.S. operating profit rose 6.4%, to about $1.02 billion, on a 5.1% gain in sales, to $18.17 billion.