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Investments Sink Delhaize Q1 Earnings

BRUSSELS — Price investments at the Food Lion and Hannaford banners are positioning the stores for long-term success but are coming at a cost to earnings, officials of parent company Delhaize Group here said Thursday.

Profits in the U.S. were down by 21.7% to $173 million on sales of $4.6 billion in the first quarter ended March 31, officials said. Sales in the U.S., led by Food Lion and Hannaford, declined by 1.2% and comps fell by 0.6% in the quarter.

Related Story: Food Lion Redraws Its Footprint

Excluding the 126 Food Lion stores closed earlier this year, U.S. revenues were up by 0.7% in the quarter.

A move to shift Food Lion from a traditional promotional approach in produce to more everyday low prices introduced early this year resulted in double-digit sales increases in certain products. At Hannaford, the company invested in price as a result of new stores from competitors Market Basket and ShopRite.

“Going forward, we think [price investment] essential to our long-term growth and we believe it pays for itself over time,” Ron Hodge, chief executive officer of Delhaize America, told analysts in a conference call. “At Hannaford, we’ve had some competitive changes in the Northeast. And two of our three largest markets, we’ve had two strong price competitors come in, with Market Basket into Manchester,  N.H., and ShopRite with its second store into Albany, N.Y. And in Q1, in both of these markets, we invested. We lowered our prices in advance of those entries. It’s a normal procedure for us and one that allows us to protect Hannaford’s position in the marketplace.”

Delhaize said its total sales improved 8.6% to $7.2 billion (U.S.) but profits fell 14.6% to $244 million.

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