Ahold USA Identical Sales, Profit Decline In Second Quarter

Ahold continued its disappointing financial trend in the U.S., posting declining sales, operating income and margins for its fiscal second quarter ended July 13. The Zaandam, Netherlands retailer said that part of the earnings decline was reflected in a decision to absorb some of its commodity price increases while making price investments as part of its ongoing “Reshaping Retail” program and a calendar shift of the Easter holiday from the first to second quarters this year.

In the U.S., sales declined 6.2 percent to $4.4 billion; underlying operating income dipped 18.6 percent to $162.2 million; underlying operating margin decreased to 3.7 percent from 4.2 percent last year; and the company’s 767 U.S. stores posted a negative identical sales growth (excluding gasoline) of 1.8 percent compared to a positive 0.3 percent ID sales gain in the corresponding quarter last year. Company-wide sales (the Netherlands, Czech Republic and the United States) for the 12 week period were $9.7 billion, a dip of 1.1 percent and net income decreased 15.5 percent.

Ahold CEO Dick Boer said: “In a challenging competitive environment, we remain focused on executing our ‘Reshaping Retail’ strategy and continue to make investments in our customer and value offering, making our stores a better place to shop. In the United States, the roll-out of our program to improve our customer proposition is progressing well, bringing better quality, service and value to our customers. By the end of this quarter, the program was active in 320 stores and will be rolled out to more than half of our stores by the end of this year. The accelerated roll out of the program together with our decision to absorb commodity price increases resulted in an investment in margin that was partly offset by cost savings from our Simplicity program.”

The company noted that its overall market share was slightly down, particularly in New England and at Giant/Landover. However, its Peapod online grocery operation achieved double-digit sales growth. In late July, Peapod opened a new warehouse in Jersey City, NJ which it said will almost double Peapod’s capacity and will consolidate its position as the leading online grocer in the United States.

The large retailer also stated: “We remain encouraged by the results of our program to improve our customer proposition. As part of this program, we improved our ‘fresh’ offering across our four U.S. divisions, enhanced the customer experience through more engaged store associates and introduced targeted price reductions. We are on track with the accelerated rollout of the program, expanding to an additional 130 stores this quarter, with 320 stores participating by the end of the quarter. We still expect to have the program implemented in over 50 percent of our stores by the end of 2014, largely funded by Simplicity cost savings in the U.S. Our underlying operating margin of 3.7 percent was 0.5 percent lower than last year as the consequence of the accelerated rollout of the program, together with commodity price increases in meat and dairy that we chose to partly absorb, to the benefit of our customers.”

In regards to its outlook for the remainder of 2014, Ahold asserted: “We expect that ongoing investments in our customer proposition and further development of our product range across multiple categories will result in improving sales trends. For the year we still expect to deliver close to $394 million in cost savings from our Simplicity program, in line with last year, which will be reinvested to improve our competitiveness. We remain focused on executing our ‘Reshaping Retail’ strategy, to take advantage of our strong brands, leading market positions, solid balance sheet, and fast-growing online business.”