BRUSSELS — Delhaize expects to see opportunities for margin improvement in the second half as it implements a 60 million euro ($93 million U.S.) cost-cutting initiative, the company said in a conference call last week discussing second-quarter earnings.
Last month, the company had projected soft results for the quarter, citing economic pressures on consumers, and it lowered its outlook for sales and profit growth for the full year (see July 28 issue of SN, Page 1).
“In the U.S. the situation worsened progressively through the second quarter, [but] we see some encouraging signs that the worsening trends have somewhat lessened at the beginning of July,” said Pierre-Olivier Beckers, chief executive officer, during last week's conference call.
The company said same-store sales in the U.S. rose 1.9% in the quarter. At both Food Lion and Hannaford Bros., the number of transactions and of items purchased per visit decreased, while at Sweetbay, the number of transactions increased, which the company attributed to price investments that began last year, while the number of items purchased per visit decreased, “as in the other U.S. operating companies, due to more prudent consumer behavior,” the company said.
Sweetbay had the strongest comparable-sore sales growth of any of the three divisions, Delhaize said.
Private-label sales at Food Lion were up 12% in the quarter, which helped contribute to an increase in U.S. gross margins. Gross margin for Delhaize overall was 24.9% of revenues for the quarter. Private-label sales now account for more than 18% of Food lion revenues.
In addition, the company said it was “starting to get some traction” from recent price reductions at Hannaford. The New England chain trimmed back retail shelf prices in June on about 1,500 items amid weakening sales trends.
Delhaize said it expects profit gains for the year to be more heavily weighted toward the second half, as it faces easier comparisons with year-ago results and expects to incur less spending for renovating markets and for the launch of expanded private-label offerings than in the first half.
In addition, Delhaize said the benefits of the cost-savings initiatives, which it did not describe in detail, will be realized in the second half.
The company said operating profit in the U.S. fell 6.4% in the second quarter, to $236.1 million, on a 2.3% gain in sales, to $4.65 billion. Through the first half, U.S. operating profit slid 3.1%, to $477.3 million, on a 3.7% revenue gain, to $9.26 billion.
Operating margins fell to 5.1% of revenues in the second quarter of 2008, compared with 5.5% in the same period of a year ago.
Overall, the company posted a 56.8% increase in net income at identical exchange rates (adjusted for the decline in the U.S. dollar against the euro), to about $180 million, primarily due to year-ago financial charges. At actual exchange rates, net income rose 42.9%. Second-quarter revenues were up 2.6% at identical rates, to $6.89 billion, but down 7.5% at actual exchange rates.
Through the first half, net income rose 24.3% at identical rates, to $337 million, on a 3.7% gain in revenues, to $13.85 billion.
During the first half, Food Lion completed “market renewals,” or area-wide remodeling programs, in Wilmington, N.C., and Savannah, Ga. For the second half, renewals are scheduled for the Virginia markets of Charlottesville and Richmond.