Ukrop's Revamps Boost Sales

Ahold here said sales have improved at the Ukrop's stores it acquired earlier since converting them to the Martin's banner. In a conference call with analysts last week discussing results for Ahold's first fiscal quarter, John Rishton, Ahold's chief executive officer, said the company has been very pleased with the improvement in sales since it has converted the 25 stores, a process that

AMSTERDAM — Ahold here said sales have improved at the Ukrop's stores it acquired earlier since converting them to the Martin's banner.

In a conference call with analysts last week discussing results for Ahold's first fiscal quarter, John Rishton, Ahold's chief executive officer, said the company has been “very pleased with the improvement in sales” since it has converted the 25 stores, a process that was completed May 17. The company converted about five locations per week for five weeks, adding beer and wine and opening the doors on Sundays, a reversal of the no-alcohol, closed-on-Sundays policy that the stores had adhered to under the ownership of the Ukrop family.

“What is clear is that customers are really appreciating it,” said Rishton. “They are appreciating the fact that they can now buy all they want in the store and the fact that they can go to the store any day of the week and find it open.”

The stores, for which Ahold paid $140 million, contributed $99 million to Ahold's first-quarter sales. The company also incurred a charge of $12 million related to the conversion of the stores to the Martin's banner, which is operated by Ahold's Giant of Carlisle, Pa., division.

“Inevitably, if you convert 25 stores in five weeks, you are going to take a hit on profits,” said Charles Allen, an analyst at Consumer Equity Research, London.

Overall, Ahold said sales in the U.S. were up 4.2% in the quarter, to $7.1 billion, and identical-store sales, excluding gasoline, were down 0.1%, compared with year-ago levels. Operating income was down about 5.7%, to $295 million, or 4.2% of sales. Ahold operates Stop & Shop and Giant-Landover in the U.S. in addition to Giant of Carlisle.

“In the U.S., all three chains increased volumes and gained market share, implying that it continues to outperform most of its local peers in a highly price-aggressive environment,” said Patrick Roquas, an analyst with Rabobank here.

Rishton also said the company was not seeing signs of consumers trading up in Ahold's U.S. stores, and that product-cost deflation had persisted in the first quarter, at a rate of about -1.5% to -2% in the U.S. and Netherlands, the company's largest operating areas.

“We are in an environment where we are still seeing deflation, where we are seeing no evidence of consumers trading back up, where we are seeing quite intense competitive promotional activity,” he said, noting that high unemployment and under-employment continue to pressure consumer spending.

He also said the company “remains confident” that it will find opportunities for acquisitions to grow its business.

“The weak will get weaker, and they are, and we will get stronger, and we are,” Rishton said. “In that environment, opportunities will arise.”

Making further acquisitions “makes a lot of sense,” said Allen of Consumer Equity Research.

“If you've got a strong offer, and you can amortize your fixed costs across a larger store base, then potentially it should be very profitable,” he said.

In total, the company reported a 45.7% gain in net income for the quarter, to about $336 million, on a 1% gain in sales, to about $10.7 billion. At constant exchange rates, sales were up about 3.4%.