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Ahold Cites Inflation in Cautious Outlook for Year

Ahold Cites Inflation in Cautious Outlook for Year

AMSTERDAM — Despite posting profit and sales gains at its U.S. operations in the second quarter, Ahold here said it remained “cautious” in its outlook for the full year because of the potential for commodity cost increases.

“With the current drought and of course the impact of possible increasing commodity prices, we’re cautious about the impact of that through the latter part of the year and certainly towards 2013,” said Dick Boer, chief executive officer, Ahold.

Inflation in the second quarter was about 2%, the company said.

Dick BoerBoer also noted challenges related to lingering weakness in the economy and its negative impact on consumer spending, although he said Ahold’s U.S. chains — which include Stop & Shop, Giant-Landover and Giant-Carlisle — have been gaining share against competitors.

“We are clearly confident that we are well on track for delivering our strategy with the leading positions we have in our markets, with improvement in sales growth we also had in the second quarter,” he said.

Ahold reported underlying operating income of $261 million for the second quarter in its U.S. operations, up 10.6% over year-ago levels. As previously reported, U.S. sales in the quarter were up 3.4%, to $6 billion, including an identical-store sales gain of 2.2%.

The operating margin in the U.S. was 4.3%, vs. 4.1% in the year-ago quarter. The company attributed the gain to “cost improvements, ongoing operational efficiencies and lower health and welfare costs.”

Through the first half of the year, Ahold’s U.S. division posted a 1% decline in operating income, to $581 million, compared with a year ago. Sales through the first half were up 3.1%, to $13.8 billion.

Read more: Ahold Cites Margin Pressure in Q1

Asked about the impact of some branded drugs coming off patent and switching to generic form, Jeff Carr, Ahold’s executive vice president and chief financial officer, said the impact varies by store, but overall it is having a “relatively small impact” driving down same-store sales by “some” basis points, but also having a “slightly positive margin impact.”

Ahold also said it was “pleased” with the conversion of 15 Genuardi’s stores in the Philadelphia market to the Giant banner, which took place in the first three weeks in July, after the second quarter ended. The company said the conversion would account for “a few million” dollars in costs in the third quarter.

More Ahold news: Ahold Completes Jumbo Buy

The acquisition preceded by just a few weeks the completion of Ahold’s purchase of 82 supermarkets in the Netherlands from Jumbo Supermarkets, which had been announced in April.

Overall, Ahold said its net income was up 24.6% in the quarter, to about $312 million, on a 3.9% gain in sales, at constant exchange rates, to about $9.7 billion. The company said competitive conditions and a weaker-than-expected soccer tie-in at its Albert Heijn chain crimped profits in its Netherlands market during the quarter.

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