Ahold Delhaize takes Q2 hit from Stop & Shop strike

Global food retailer Ahold Delhaize said the 11-day Stop & Shop strike in April took a bite out of fiscal 2019 second-quarter results, leading to virtually flat sales and declined operating income in its U.S. business.

Net sales at Ahold Delhaize USA totaled $10.99 billion in the quarter, up 0.2% from $10.96 billion a year earlier, the company reported Wednesday. Online sales rose 14.4% to $249 million from $217 million. Same-store sales dipped 0.2% but, excluding fuel, were up 2.2%.

U.S. operating income fell 15.3% (19.7% at constant exchange rates) to $369 million. Underlying operating income decreased 13.4% (17.9% at constant exchange rates) to $389.8 million, with underlying operating margin down 70 basis points to 3.6%.

In a conference call early Wednesday, Ahold Delhaize Chief Financial Officer Jeff Carr said the Stop & Shop strike — which ran from April 11 through April 21 — resulted in lost U.S. sales of $224 million directly from the work stoppage and $121 million during the ensuing recovery period. He also reported a $100 million negative impact on underlying operating income, within the company’s projection of $90 million to $110 million. That impact reflects the loss of margin on the $224 million direct strike-related sales, increased in-store and distribution shrinkage, increased markdowns and other costs, he said.

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“If we adjust for the strike, comparable sales would have grown by 3.4%, underpinning the strong performance in our other U.S. brands,” Carr told analysts in the call. “And if we also adjust for Easter, which had a 110-basis-point impact, comparable sales would be up 2.3% in the quarter.”

President and CEO Frans Muller also emphasized that a strong showing by the other U.S. retail brands — including Food Lion, Hannaford, Giant/Martin’s, Giant Food and online grocer Peapod — helped mitigate the impact from the Stop & Shop strike. He said Ahold Delhaize expects to see improved sales at Stop & Shop and “no significant impact” from the strike in the 2019 second half.

“In Long Island [N.Y.], we see an encouraging start of the rollout of our ‘Re-imagine Stop & Shop’ program, in part due to implementing the learnings from our Hartford [Conn.] stores, which we remodeled last year. We are pleased to see that these Hartford stores continue to improve their sales performance and outperform the comparable Stop & Shop stores,” Muller (left) said in the call.

“Our other highlights in the U.S., Food Lion reported its 27th consecutive quarter of positive comparable-sales growth, clearly demonstrating an ongoing momentum from rolling out the successful ‘Easy, Fresh and Affordable’ program,” he said. “Another 115 Food Lion stores will be remodeled in the second half of 2019. And with that, Food Lion will have upgraded 80% of its 1,000 stores across its 10-state operating area by the end of 2019.”

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Muller also noted that Ahold Delhaize USA remains on track to hit its growth target for online sales.

“We are pleased with our overall online sales growth, be it that online sales at Stop & Shop were also impacted by the strike. Adjusted for that, online sales growth in the U.S. would have been 18%, as we added 124 click-and-collect points during the quarter, most of them at Food Lion and Giant/Martin's. This brings the total of click-and-collect locations to 483, in line with our online growth ambition to have more than 600 click-and-collect points by the end of this year and to grow our online sales by more than 20% this year,” he explained.

“Peapod continues to expand its already large selection of meal kits, simplifying grocery shopping and making cooking more convenient for our customers,” Muller added.

Ahold Delhaize USA closed out the second quarter with 1,971 stores, a gain of 10 since the end of 2018 from new and acquired stores.

Overall for the second quarter, Ahold Delhaize had net sales of €16.32 billion ($18.33 billion U.S.), a gain of 5% (1.5% at constant exchange rates) from €15.53 billion ($17.45 billion U.S.) in the prior-year period, reflecting the impact from the Stop & Shop strike. Net income came in at €334 million, or €0.35 per share (continuing operations), compared with €408 million, or €0.36 per share, a year ago. Operating income declined 13.1% (15.9% at constant exchange rates) to €560 million for the quarter.

“In the first week after the strike ended, we put a lot of effort into winning our customers back. But at the same time, as we had said earlier to the market, we would like to further invest in the price positioning of Stop & Shop in general. So, at the moment, we're investing in price to make sure that the lost customers come back,” Muller told analysts in the call. “We have attractive promotional programs and also, with the remodeling so far our Hartford and Long Island stores, we see that we will recover from the strike whereby the last single customer is coming back. We're still working hard on this. So we have good programs on the total [value] proposition of Stop & Shop. We have an excellent brand, very good brand equity and excellent locations, and we're very happy with the recovery so far.”

Ahold Delhaize saw total net consumer online sales climb 31% (29.2% at constant exchange rates) to €1.04 billion ($1.09 billion U.S.) in the second quarter. Muller noted that the expansion of grocery pickup service in the U.S. will continue to fuel online sales.

“That is a big driver for our omnichannel and e-commerce growth. So that's why we are confident that we will reach more than 20% [growth] for this year, and we announced for next year 30% growth of e-commerce sales,” he said. “We all know that our business is very much food-driven, so it's food online sales that makes us a strong, leading e-commerce retailer on the East Coast.”

As of the quarter’s end, Ahold Delhaize had 6,838 stores overall, compared with 6,769 a year ago, reflecting a net gain of 69. Besides the U.S. locations, the total includes 2,149 stores in the Netherlands, 788 stores in Belgium, and 1,930 in Central and Southeastern Europe.