Ahold Delhaize sales slow in Q1, but synergies protect profits

Food Lion readies for Lidl; “basic” bfresh improves

Ahold Delhaize said Wednesday that U.S. sales during its first quarter were lighter than the same period a year ago, citing price deflation, a late Easter holiday, effects of Northeast market contraction and a lack of sales-building winter storms.

However, the company said deflationary pressures eased during the course of the quarter and cost savings associated with their merger helped to ease the effect of softer sales on the bottom line.

For the period, Ahold Delhaize posted U.S. sales of about $10.6 billion. Ahold USA sales (Stop & Shop, Giant-Carlisle, Giant-Landover and Peapod) accounted for $6.4 billion but declined by 1.4% with non-fuel comps down by 1.8%. Delhaize America (Food Lion and Hannaford) combined for sales of $4.2 billion — a 0.1% increase — with flat comps.

Officials said Ahold USA sales were slowed by the effects of cycling the market contraction of A&P closures in the year-ago period, and by a winter with fewer snowstorms than the year before. Deflation was about 1.3% in the quarter, but consistent with peers who reported over a similar period, officials said the rate eased as the quarter went on.

In a conference call discussing results, Ahold Delhaize CEO Dick Boer said the company was at work on its “heading Northeast” strategy at Stop & Shop and Giant-Landover stores focused on center store after rolling improvements through fresh departments. “We're optimizing our product ranges and we look at our space allocation per store to max all their needs and provide a distinct offer for our customers,” Boer said. “That's really working on improving the center store offer for our customers.”

Delhaize banners continued to show volume growth during the period, despite deflation of 1.7%.

Ahold Delhaize said underlying operating margins were down by 0.1% at Ahold USA and up by 0.5% at Delhaize America as the parent was able to flow 35 million euros (about $38 million) to the bottom line

Asked to comment on Food Lion’s ability to withstand a competitive intrusion from Lidl stores — expected to begin within weeks — Boer cited Food Lion’s comp-sales resiliency against a 100-store Walmart Neighborhood Market invasion in recent years. He added he was confident Food Lion’s “Easy Fresh and Affordable” store repositionings and associated price and service enhancements had the chain in good shape to respond.

Boer expects Lidl will open 20 to 25 stores that will compete with Food Lion stores before summer and stores in those areas in particular will be ready to fight. “We know exactly where they will come,” he said.

In response to another analyst question, Boer acknowledged that its bfresh small store, which opened in Boston in 2014, had underperformed sales-per-square-foot expectations out of the gate but was doing better sales behind a more “basic” model it has evolved to since. “The first bfresh clearly were too upbeat and a bit too — maybe too cool,” he said.

Boer said that between bfresh and Hannaford’s new small stores, Ahold Delhaize was hopeful to decide on a small-store rollout later this year “because it's clearly [right] for the market and nice opportunity for us.”

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