2nd UPDATE: Ahold In New Cost Cutting Program
(adds detail, CEO and company comments.)
By Anna Marij van der Meulen
Of DOW JONES NEWSWIRES
AMSTERDAM -(Dow Jones)- Food retailer Royal Ahold NV (AH.AE) Wednesday posted
a better-than-expected 22% rise in third-quarter net profit, but launched a
EUR350 million cost-cutting program and warned competition will intensify in the
holiday season.
In a sign of growing pressure from rivals, the Dutch giant said earnings from
one of its regional chains in the U.S. had been crimped by competition from Wal-
Mart Stores Inc. (WMT), the world's biggest retailer.
Ahold, which generates over half its sales in the U.S., revealed that
operating income at its Pennsylvania-based Giant Carlisle chain fell 10%. Its
main competitor in the state is Wal-Mart, which has launched high-profile
discounting efforts.
Ahold's retail margin at Giant Carlisle slid to 4.1% in the third quarter from
4.6% a year earlier, weighed by the consumer downturn and increased competition.
A company spokesman said Ahold currently doesn't plan any new promotional
campaigns in Pennsylvania. The retailer's chief executive John Rishton said only
that "We continue to invest in prices at Giant Carlisle, as we do in all our
chains".
Sales at Giant Carlisle open longer than a year, excluding fuel, rose 1% in
the third quarter while Wal-Mart reported a 0.4% decline in same-store sales for
its third quarter. Another competitor there, Supervalu Inc's (SVU) Acme, said
same-store sales fell 4.8% in its fiscal second quarter.
Operating income at Ahold's Stop&Shop/Giant-Landover chains, which operate
mainly in the Boston, Washington and New York areas, did better, rising 13% to $
189 million.
Industry projections for holiday spending in the U.S. are hovering around flat
from last year, which was the worst holiday period since the data have been
tracked.
"Consumers are buying what they need, not what they want," Ahold CEO Rishton
told reporters, echoing comments from Target Corp. (TGT) Tuesday. Rishton
doesn't expect that situation to change before the end of the year.
Ahold Wednesday unveiled a new savings program to run through 2012 aimed at
cutting costs such as store expenses and those in the supply chain. The new
program will replace a EUR500 million cost-reduction plan that began in 2006 and
is due to conclude this year.
The Dutch retailer said its third-quarter net profit rose to EUR238 million,
from EUR195 million in the same period a year ago, mainly due to lower income
taxes and in spite of lower interest income, which dropped to EUR4 million from
EUR26 million. Income taxes dropped to EUR1 million from EUR62 million a year
ago due to a one-off EUR36 million U.S. deferred tax asset. Six analysts polled
by Dow Jones Newswires had forecast net profit of EUR181.6 million.
Operating income edged up to EUR265 million from EUR261 million and the
operational retail margin slipped to 4.8% from 4.9%.
Ahold last month posted a smaller-than-expected 4.3% rise in third-quarter
sales of EUR6.04 billion.
On Nov. 5 the group announced it was appointing new operational managers for
the Europe and U.S., freeing up the board members to spend more time on
expansion projects.
CEO Rishton Wednesday reiterated that Ahold was looking at both organic growth
as well as acquisitions.
"The past 3 years we focused on repostioning ourselves, now it is time to
grow", he said.
Organic growth in the U.S could include new store formats such as the pilot
with convenience stores it currently runs in Pennsylvania, Rishton said. "We
will add a few more of those convenience stores in 2010, but rolling out a new
format takes time", Rishton said.
The organizational revamp was seen by analysts as a first step to end several
years in which Ahold has underperformed the market and its European and U.S.
peers, such as Carrefour SA (CA.FR), Supervalu Inc. or Safeway Inc. (SWY).
By Anna Marij van der Meulen; Dow Jones Newswires, +31-20-5715 201;
annamarij.vandermeulen@dowjones.com
(END) Dow Jones Newswires
11-18-091052ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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