BRUSSELS, Belgium -- Delhaize Group here last week said it was optimistic that the second half of 2005 would be better than the first.
After reporting weaker-than-expected results for the first two quarters, Delhaize said in a conference call last week that improving sales trends at Food Lion and several other factors should propel the company's sales and earnings down the stretch.
"We have a lot of irons in the fire, and we believe they will support our performance in the second half of the year," said Pierre-Olivier Beckers, president and chief executive officer, Delhaize, in a conference call discussing second-quarter results.
He said a more aggressive promotional stance at Food Lion, which began in the second quarter, has reversed negative same-store sales trends at that chain. In addition, Food Lion has 102 locations that compete with Winn-Dixie stores that are slated for closure, which Beckers said "represents a major opportunity over time."
Carol Herndon, chief accounting officer, said the company "is beginning to see positive benefits" in the form of sales increases since Winn-Dixie has begun closing some stores. "We have plans store by store to aggressively pursue those sales as those stores close over the course of the next couple of weeks."
Food Lion itself has agreed to acquire five Winn-Dixie locations in North Carolina and one in Georgia. Winn-Dixie is selling 102 locations and seeking to close about 224 as it works its way through Chapter 11 bankruptcy.
Delhaize also expects to see benefits from its most recent "market renewal," which included remodeling 58 of the 90 stores in the Greensboro, N.C., market. Advertising to support the transition launched in June.
Other initiatives under way at the chain include new meat programs. The chain said it has seen beef sales increase within the total meat department since it launched Butcher's Brand, an exclusive private-label beef offering, in April. Food Lion that month also rolled out a new meat program specifically tailored for rural markets at 100 stores. Together with improved customer service, pricing, training and advertising, the program has driven up meat-department sales in those stores by more than 10%, Delhaize said.
In addition, the company expects to benefit from the conversion of its Victory Supermarkets banner in New England to Hannaford Bros., which is slated to be completed by the end of the third quarter. The impact of the switch to everyday low pricing at the acquired locations should begin to provide benefits by the end of the year, the company said.
In the first several months after converting to an EDLP program, sales tend to decline slightly as customers gravitate to weekly specials, according to Ron Hodge, CEO, Hannaford.
"We know that it takes six to nine months to start to build on the pricing reputation that you have with EDLP," he said. "That will happen later this year."
The company is also adding pharmacies and Nature's Place natural/organic departments to several of the Victory locations, he said.
The company said it continues to be pleased with the conversion of its Kash n' Karry banner in Florida to the Sweetbay concept, which the company describes as a Florida-specific version of Hannaford. It has 17 stores converted and expects to accelerate the schedule of conversions for 2006.
The company's optimism about second-half trends allowed it leave its earnings guidance in place for the year despite sagging sales and earnings in the first six months, which the company attributed to competitive activity and high gas prices.
Delhaize said its operating profits in the U.S. fell 4.6% in the second quarter, to $206.1 million, on a 3.2% increase in sales, to $4.13 billion. Comparable-store sales fell by 0.4% in the period, but were up 0.2% when adjusted for the Easter holiday, which occurred early this year. The overall sales gain was driven by the Victory Supermarkets acquisition in the fourth quarter a year ago and by new stores.
Operating margins in the period were 5% of sales, vs. 5.4% of sales in the second quarter of 2004.
Through the first half of 2005, the company reported a 1.8% decline in operating profits, to $414.7 million, on a 3.8% gain in sales, to $8.16 billion.
The company said sales at Hannaford and Sweetbay were strong, but sales growth at Food Lion, Kash n' Karry and Harveys "was weak due to strong competitive activity and consumer uncertainty due to higher gasoline prices."
The U.S. represents about 75% of Delhaize's sales, but the company reported that conditions in its home market of Belgium also were difficult in the first half.
Delhaize Group's operating profits overall fell 13.3% in the second quarter, to 206.4 million euros, or about $254.8 million. Sales were down 0.1%, to about $5.67 billion.
