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Ahold Delhaize closes out fiscal year on an up note

U.S. business gets lift from strategic investments, online sales

Ahold Delhaize posted solid net and same-store sales gains for its U.S. operations in the 2018 fourth-quarter and fiscal year as part of overall uptick in sales at the company.

In a conference call with analysts on Wednesday, Chairman and CEO Frans Muller (pictured) also said the global food retailer is on track with accelerated efforts to invest in and expand e-commerce operations in the United States and internationally, with a goal of doubling online sales to about €7 billion ($7.96 billion U.S.) by 2021.

Fourth-quarter sales totaled €16.55 billion ($18.81 billion), up 5% (3% at constant exchange rates) from €15.76 billion ($17.92 billion) a year earlier. Fiscal 2018 sales dipped 0.2% to €62.79 billion ($71.38 billion) from €62.89 billion ($71.49 billion) but at constant exchange rates grew 2.5%, Ahold Delhaize reported.

Net income in the quarter was €517 million, or €0.45 per share (continuing operations), compared with €744 million, or €0.60 per share, a year ago. For 2018, net earnings totaled €1.79 billion, or €1.54 per share (continuing operations), versus €1.82 billion, or €1.45 per share, in 2017. Operating income rose by 9.1% (11.3% at constant exchange rates) to €627 million for the quarter and by 7.7% (10.5% at constant rates) to nearly €2.4 billion for the year.

Companywide, net consumer online sales climbed by 25.8% (25% at constant exchange rates) to about €1.1 billion in the fourth quarter and by 23.4% (24.8% at constant rates) to €3.49 billion in fiscal 2018.

“We are pleased to report a strong financial performance again this year, with results in close to 30% growth of underlying earnings per share for the full year,” Muller (left) old analysts in the call. “In 2018, we essentially completed the integration [of Royal Ahold and Delhaize Group] and delivered on the synergies according to plan. And in the meantime, our strong local brands continued to perform well while investing in meeting the needs of our customers in a rapidly changing industry.”

At Ahold Delhaize USA, net sales increased 2.6% to $11.17 billion in the 2018 fourth quarter from $10.89 billion a year earlier. Comparable-store stores grew 2.7%, excluding fuel. Online sales were up 12.1% to $232 million, propelled by same-day delivery, the Peapod online grocery service and the Hannaford To Go pickup service, the company said.

Full-year U.S. net sales were $44.17 billion, up 1.9% from $43.36 billion in 2017. The 2018 figure reflected a 10.3% gain in online sales to $886 million.

Operating income for Ahold Delhaize USA rose by 13.4% to $449 million for the 2018 fourth quarter and by 12.9% to $1.75 billion for the fiscal year.

“In the U.S., we continued to see good momentum in the business with market share gains while benefiting from synergies and investing in both our store network and online offering,” Muller said in the conference call.

Ahold Delhaize Chief Financial Officer Jeff Carr told analysts that some of the U.S. strategic initiatives are starting to bear fruit.

“Across the brands, Food Lion had the strongest growth as we continued to rollout the Easy, Fresh and Affordable program, where we continue to see good results,” he said. “We've now remodeled 70% of the Food Lion stores, and we completed Virginia, Norfolk and the greater Roanoke markets in 2018.”

Over the next five years, Stop & Shop is slated to roll out a new look and shopping experience at its 412 stores in Massachusetts, Connecticut, Rhode Island, New York and New Jersey. That effort began in early October at 21 stores in the Hartford, Conn., area. Stop & Shop stores on Long Island, N.Y., are next in line for the program, starting in 2019.

“At Stop & Shop, comparable-sales growth remains a little bit more challenged. However, we are excited about the reimagined Stop & Shop program, which started in Hartford, Conn., at the end of last year,” Carr said. “We expect to see an acceleration of sales growth as we continue to expand this program.”

Ahold Delhaize has projected the changes at Stop & Shop — its largest business unit — to lift store sales 4% to 6% on a pro forma basis in the first year, 2% to 4% in the second and 2% in the third. Plans call for 60 to 80 stores to be upgraded annually under the program.

“The first phase of the Stop & Shop reimagining program is generating a positive sales uplift,” Muller said of the Stop & Shop remodels in Hartford.

Overall for 2018, Ahold Delhaize spent $1.2 billion on store remodels and expansion of its brick-and-mortar and online retail network, Muller reported. “The rollout program of our click-and-collect points is absolutely on track, with Food Lion To-Go service now available at 53 Food Lion stores,” he said.

U.S. online grocery subsidiary Peapod boosted its order delivery capacity by 10% in metropolitan New York with the opening of its fifth wareroom on Long Island during fiscal 2018, while Stop & Shop launched its first micro-fulfillment center in Hartford and plans to build several more in 2019, with further expansion in 2020, according to Muller. He also cited the launch of Giant Food Stores’ new urban format, Giant Heirloom Market, in Philadelphia, with three more of these stores slated to open in the city this year.

In addition, he noted that Stop & Shop’s and Giant/Martin's introduction of in-store maintenance robots in 2018 was “one of the largest deployments of robotics innovation in the U.S. grocery industry overall.”

“With a very robust financial profile and with the right structure to grow further our brands both in store and online, we are well-positioned to continue to win in our markets. We are completing the merger integration process this year and delivering synergies as promised,” Muller said.

Ahold Delhaize USA operates about 1,960 supermarkets along the East Coast under the Giant/Martin’s, Stop & Shop, Giant Food, Food Lion and Hannaford banners. Including its Peapod online grocery, the division accounted for 60% of Ahold Delhaize’s net sales in fiscal 2018.

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