Deflation Abates, Weis Markets, Ahold Delhaize Post Profit Gains

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The setup of the brand-centric model in the United States that Ahold Delhaize announced in Q1 2017 is expected to be completed by mid-2018 and the new setup is expected to result in restructuring costs of $82.3 million. This model seeks to better position the company’s U.S. brands to be even more closely connected to their local customers and communities.

Financials were released on an actual and a pro forma net basis to give effect that the merger between the two companies had occurred on the first day of Ahold’s 2015 fiscal year, using the fair values established on July 23, 2016 (the official merger date). The pro forma data is intended to provide a comparative basis for the assessment of current performance.

Using that pro forma analysis, sales at Ahold USA overall second quarter sales grew 2.5 percent from last year’s corresponding second period. Underlying EBITA margin increased slightly from 6.5 percent to 6.9 percent and underlying income rose from $209 million to $239 million. However, comparable sales growth declined from 2 percent to 0.3 percent.

The retailer also noted that ongoing investments in its customer proposition resulted in continued year-over-year market share growth in Q2 and increased customer loyalty with improved scores on overall price, produce quality, and meat quality. At the end of the quarter, Ahold USA announced new price investments in own brands, produce, milk and eggs.

It’s clear to date, as many industry analysts predicted, that Ahold Delhaize is performing its backroom synergy functions more effectively than its ability to grow comp revenue.

At sister U.S. division Delhaize America (Food Lion, Hannaford), pro forma net overall sales increased by 1.2 percent to $4.69 million in its second quarter at constant exchange rates. Comparable sales were 1.3 percent for the quarter, a decline from last year’s same store second quarter revenue of 3 percent. Price inflation returned at Hannaford, while the Food Lion market remained slightly deflationary. Overall, inflation for the quarter was 0.1 percent for Delhaize America.

The rollout of the “Easy, Fresh & Affordable” (EF&A) strategy at Food Lion is progressing well, the company noted, with all the remodeled markets continuing to record positive real growth. In the second part of 2017, EF&A will be rolled out to two new market areas, Greensboro, NC and Richmond, VA with 164 stores to be remodeled.

Delhaize America’s pro forma underlying operating margin was 3.8 percent, up 0.4 percentage points from the same quarter last year, as a result of strong synergy savings as well as the unit’s “save for our customer” programs. These were partly offset by higher depreciation expenses related to “EF&A,” increased labor costs and costs related to a fire at a distribution center that has not been recovered yet.