U.S. News

Ahold First-Quarter Sales Down, Underlying Growth Bodes Well


Dutch food retailer Ahold reported a slight dip in first-quarter group sales on Friday, in line with market expectations, but analysts said underlying sales growth boded well for a recovery.

The world's fourth-biggest food retail and foodservice group by sales said revenues declined 0.7% to 13.2 billion euros ($17.9 billion), compared with the average forecast of 13.1 billion euros given in a Reuters poll of nine analysts.

At constant exchange rates net sales rose 5.8% in the quarter, Ahold said. It reiterated previous statements, warning that the overhaul of its U.S. supermarkets would continue to hurt margins.

Analysts said positive identical sales growth -- net sales from the same stores in local currency -- and especially the rebound at a key U.S. retail chain outweighed the comments on margin.

"Ahold beat consensus like-for-like figures for every division. The Dutch business impressed most but the revival in sales growth at Stop&Shop is very welcome," Citigroup analyst James Anstead said in a note.

Ahold shares were 0.8% lower at 9.30 euros versus a 0.8% drop in the DJ Stoxx retail index.

They are up about 16% in the year to date, boosted by talk of a merger with Belgium's Delhaize and a break-up of the group. Delhaize shares were 0.7% off.

Ahold shares hit a four-year high last week after the retailer announced the sale of U.S. Foodservice to two private equity firms Clayton, Dubilier & Rice and Kohlberg Kravis Roberts for a higher-than-expected $7.1 billion.

Ahold's U.S. Assets

Ahold owns the Netherlands' biggest supermarket chain but generates three quarters of its turnover in the United States from its Stop&Shop/Giant-Landover and Giant Carlisle/Tops supermarkets and catering supplies unit U.S. Foodservice (USF).

"Price investments related to the further roll-out of the Value Improvement Programme, launched in September 2006 at Stop & Shop and Giant-Landover, will continue to impact margins," Ahold said in a statement.

Ahold is now revamping its U.S. supermarkets, with analysts saying the benefits will only be seen next year.

"There is still a big task ahead - we think it will take time for the value improvement programme to deliver results," Credit Suisse analysts wrote in a note.

Stop&Shop/Giant-Landover had sales of 3.85 billion euros, down 6.8% while Giant-Carlisle posted a 6.3% rise in sales to 983 million euros. U.S. Foodservice had revenues of 4.6 billion euros, a 4.4% drop.

Dutch supermarket chain and market leader Albert Heijn continued last year's strong performance, with sales up 12.6% at 2.36 billion euros, at the top end of forecasts.

Ahold has come under pressure since last year from hedge funds Centaurus Capital and Paulson & Co. to sell its U.S. assets and focus on Europe. The two, which hold a combined stake of 6.4%, had pushed for the sale of U.S. Foodservice.

Ahold shares trade at about 17 times forecast 2007 earnings compared with 16 times for Delhaize and French food retailer Carrefour's 20 times.