Ahold Delhaize posted better than expected financial results for its fiscal fourth quarter behind a balance of strong performances from its respective halves and synergy savings derived from their combination.
The company, which completed a merger last year, saw particularly strong sales and margins from Ahold’s Netherlands base and from Delhaize’s operations in the U.S. Those results helped to overcome softer sales performance at Delhaize’s stores in Belgium and at Ahold U.S. banners. In total, the company posted better quarterly EBITDA and cash generation than the market anticipated, and near the top of the company’s guidance.
In a conference call discussing results, CEO Dick Boer touted a combination of cost discipline and investments to address local brands as a key to success, including the recently announced restructuring of its U.S. business, which over the course of the year will shift marketing and merchandising to local banners while taking advantage of a recently established shared central services hub.
Ahold posted sales results for the period in January, noting that Delhaize America banners Food Lion and Hannaford posted 2.2% non-fuel same store sales while Ahold’s Stop & Shop and Giant banners saw a 0.2% comp decline.
Ahold USA sales grew by 0.7% to about $5.9 billion (U.S.) when adjusted for an extra week in the previous period and market share increased across its divisions, officials said Wednesday. They attributed the comp decline to ongoing effects of deflation, which was about 1.2% in the period. Underlying operating margin at Ahold USA was 4% in the quarter, which is in line with last year when adjusted for an extra week in the year-ago period.
Boer said the Ahold USA banners are continuing to see gradual benefits of its “moving Northeast” strategy, which combines service and presentation innovations in store with price investments funded by cost savings. Ahold has completed bakery and produce resets in all its stores and is at work on deli and meat and seafood presently. He said the program would expand to center store this year.
At Delhaize America, sales of about $4.2 billion (U.S.) grew by 2% despite 1.7% deflation. Underlying operating margin of 3.6% at Delhaize improved from 3.3% in last year’s fourth quarter, resulting from leverage from volume growth, more local products in the assortment and synergy savings, which began flowing through in the quarter, slightly offset by higher labor costs and increased service at Hannaford, CFO Jeff Carr said.
Companywide, pro forma underlying operating margin was 3.7%, an improvement of 20 basis points compared to last year. This resulted in free cash flow of 1.4 billion euros (about $1.5 billion U.S.) for the full year, slightly ahead of company guidance.
Fernand deBoer, an analyst following Ahold Delhaize for Degroof Petercam, said he expected that Ahold Delhaize could continue a similar performance even amid heavier competition expected later this year when discounter Lidl is expected to arrive in its Food Lion and Giant-Landover territories.
“I believe that Ahold Delhaize has proven that they can handle [competition] and are acting accordingly,” deBoer said in an email. “So [just] execute a strategy of cost focus, improving the offering and no wild growth plans. That may be boring, but that is the limitation of the industry. Investors should be aware of that: Food retail in the U.S. and Europe is about low growth and cash generation. Ahold Delhaize management has understood that very well.”