Based in Belgium,
), a well known retailer of food products, reported adjusted
earnings of $1.07 per diluted share in the second quarter of fiscal
2012, down 28.9% from the comparable prior-year quarter. The
year-over-year decline in earnings was due to weak margins.
The company reported year over year net revenue growth of 4.2% in
constant currency in the second quarter of fiscal 2012, driven by
strong comparable store sales growth in Belgium and Southeastern
Europe and Asia.
The company generated revenue from the United States segment,
Belgium segment and Southeastern Europe & Asia segment.
United States reported 3.1% year-over-year decline in revenue due
to a 0.6% decline in comparable store sales. However, segment
volume grew in the second quarter driven by repositioning of the
Food Lion brand and strong sales growth of Bottom Dollar Food. The
company has repositioned more than 700 Food Lion stores and expects
that the strategy would support top-line growth in the second half
of the fiscal 2012.
For the second quarter of 2012, Belgium segment reported 0.4% year
over year rise in revenue, driven by over 1.1% growth in comparable
For the second quarter of 2012, the Southeastern Europe and Asia
segment reported 58.8% increase in revenue, driven by Maxi
acquisitions and strong growth in comparable store sales
particularly in Romania.
The company's gross margin declined 92 basis points to 24.3% in the
second quarter of 2012, owing to the low margin Maxi acquisition
and price increases in Belgium and the U.S. The underlying
operating margin was 3.2% in the second quarter of 2012, compared
with 4.1% in the prior-year quarter.
Delhaize Group acquired Delta Maxi during the first half of 2012,
at a cost of $748 million. The company expects the acquisition to
contribute to profitability in fiscal 2012.
The company expects to generate savings of $643 million by the end
of fiscal 2012 from their ongoing 2010 to 2012 cost reduction
program. The company maintains its previous guidance of 15% to 20%
decline in underlying operating profit at identical exchange
rates. The company's continuous investment in prices and
customer focused operations is expected to generate underlying
operating profit close to higher end of the range.
We currently have a Neutral recommendation on Delhaize Group.
The stock carries a Zacks #4 Rank (short-term 'Sell' rating).
DELHAIZE-LE (DEG): Free Stock Analysis Report
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We are positive about the company's repositioning of stores and
cost control initiatives. However, we prefer to stay on the
sidelines till there are further improvements in global