AHOLD: EDWARDS NAME CHANGE SHOULD HAVE COME SOONER

ELLIOT ZWIEBACH

ZAANDAM, The Netherlands -- Ahold here said last week it should have converted its Edwards Super Food Stores in the New York metropolitan area to the Stop & Shop banner long before now.

The company said late last month it will fold the 75 stores into Stop & Shop and convert the store banners before the end of the year.

"In retrospect, it's a decision we should have taken much earlier," Cees van der Hoeven, president and chief executive officer of Ahold, said in a conference call with financial analysts, "and I take personal responsibility that we made that mistake several years ago."

He said the pending conversion "should be seen as a correction of a mistake made by us. Folding Edwards into Stop & Shop should finally resolve the issues of underperformance at Edwards for quite some time."

Van der Hoeven said the conversion would not occur overnight "because obviously we will have to remodel some stores, change the banners and kick in the Stop & Shop programs."

Ahold had at one time intended to convert the Edwards stores to the Pathmark banner -- until late 1999, when it called off its plans to acquire Pathmark Stores, Carteret, N.J.

"We were struggling with the issue of Pathmark for too long a time, and there was uncertainty about whether or not we should invest on a major scale in the Edwards stores," van der Hoeven said. "So we held back, and that allowed competition to strengthen its act, and that has impacted Edwards more than we expected.

"But last year we saw a strong turnaround at Edwards, and it has continued to show positive numbers, but it's substantially underperforming compared with our other U.S. operations, so it's high time we made a final decision to make the conversion to the Stop & Shop banner."

Michael Meurs, chief financial officer, said renaming the stores should have a significant impact on the operations and performance of those stores.

He also said that although Edwards' switch to a low-everyday-pricing approach several years ago had improved the chain's results, "those results ultimately did not continue as strong as we would have hoped.

"When Bob Tobin came on board [as president of Ahold USA in mid-1998], one of the first things he did was to change the Edwards stores to a more promotional program, and that's one of the main reasons Edwards results improved last year."

Van der Hoeven said the switch from EDLP at Edwards does not reflect a negative opinion of EDLP for other divisions, particularly Giant Foods, Carlisle, Pa. "EDLP has been very successful at Giant for many years -- it's driven strong sales and earnings growth there over the years -- and we see no need to change the program there."

For the 16-week quarter ended April 23 Ahold sales worldwide rose 17.6% to $10.5 billion and net income rose 31.5% to $221.4 million.

In the U.S. sales were up 5% to $6.4 billion, with comparable store sales up 2% and operating income up 17.6% to $313.7 million.

Van der Hoeven said sales and earnings gains in the U.S. reflected autonomous growth, without the impact of any acquisitions. He said the consolidations of two companies -- U.S. Foodservice in the U.S. and ICA in Sweden -- were not completed prior to the end of the first quarter.

Van der Hoeven said comps were flat during January and February, "and the 2% increase for the quarter was largely driven by results during the last eight weeks of the quarter."

He said the company is seeing "decent numbers" during the current quarter "but comps are not accelerating, and we're targeting growth of 1.5-2% for the year."

Van der Hoeven said financial results in the U.S. were primarily driven by ongoing synergy projects, including alignment of private-label programs, centralized procurement of health and beauty care items and the exchange of best practices.

"And we still have a ways to go as we continue to improve our act," he said, noting the company expects operating cash flow to rise at least 30 basis points this year.