ZAANDAM, Netherlands -- Ahold here said it would triple the number of remodels at its Stop & Shop and Giant-Landover chains this year as it seeks to regain sales momentum at the recently combined banners.
In a conference call last week discussing its results for the fiscal year ended Jan. 2, Ahold said it would boost capital expenditures to 4% of sales this year, or an estimated $2.3 billion, after cutting back to 3.5% of sales in 2004 to reduce costs in the wake of its 2003 accounting debacle. Much of that investment is slated to go toward the Giant-Landover chain, where comparable-store sales fell 4.6% in 2004.
A spokesman for Giant-Landover said the chain opened eight new stores, remodeled six, and expanded two last year.
Analysts said they are concerned about the company's ability to revive the performance of the U.S. stores.
"2005 will be another year of transition for U.S. Retail," said Patrick Roquas, analyst, Rabo Securities, Amsterdam, in a research report. He described the challenges ahead as "difficult."
"Caution with regard to U.S. Retail is the main reason for our [earnings] estimates being below management's targets," he said.
Ahold, which generates about 70% of its cash flow from the United States, said it was facing increasing competition in New England for its Stop & Shop banner, primarily from steady growth of new supercenters operated by Wal-Mart Stores, Bentonville, Ark.
"From a competitive standpoint, we have really gone through an unprecedented level of competitive [openings] and promotional surges in the market in the last year and going back to the middle of 2003," said Marc Smith, president and chief executive officer, Stop & Shop/Giant-Landover, in the conference call. "So, the market continues at unprecedented levels. That's obviously been somewhat reflected in the performance of Stop & Shop."
In the fourth quarter, sales in the company's Stop & Shop/Giant-Landover division were up 10.8% over year-ago levels, to about $4.1 billion. Yet, operating income fell 18%, to about $210 million, which the company attributed to difficulties integrating the two chains in addition to competitive pressures. Same-store sales fell 2.3% for the chains combined.
For the full year, sales were up 3.6%, to $16.1 billion, while operating income fell 25.8%, to $847 million, compared with year-ago results. Same-store sales for the full year fell 1.6% at the Stop & Shop/Giant-Landover division.
The company's best performers in 2004 were its Giant-Carlisle/Tops division, where same-store sales were up 2.5% for the year, including 4.2% at Giant and 0.8% at Tops, and the Peapod online grocery service, which had sales growth of 31.2% in 2004.
In the fourth quarter, sales at the Giant-Carlisle/Tops division were up 15.2%, to about $1.7 billion. Operating income was $29 million, vs. $1 million in the year-ago fourth quarter. Same-store sales for the combined banners rose 3.7%.
Although Ahold posted profit gains in the fourth quarter, the company reported a loss for the full fiscal year after losses related to divestments and the resale of 10% of its stake in a Scandinavian retailer. Fourth-quarter net income totaled about $125 million, an eightfold increase over 2003 levels, on a 3% decline in sales, to about $16.1 billion.
The loss for the year totaled $576 million, vs. a loss of about $1.3 million in the preceding year. Sales were about $67.6 billion, down 7.3% from year-ago results.