Quarterly Profit for Royal Ahold, Owner of Giant Food, Grew 10%
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Tuesday, March 3, 2009
Royal Ahold, the Dutch owner of the Stop & Shop and Giant Food chains, reported fourth-quarter profit growth that beat analysts' estimates after two years of cutting prices and adding own-label products in the United States paid off.
Profit rose 9.6 percent to $358 million, or 24 cents a share, the Amsterdam-based company said in a statement yesterday. That beat the $289 million median estimate of 12 analysts surveyed by Bloomberg News.
Ahold reached its 2008 goal for growth in operating margins, which rose to the highest level in five years in the United States. The retailer, which gets more than half its sales in North America, maintained its financial goals last year as shoppers sought to economize during the recession, while competitors such as Brussels-based Delhaize Group cut their targets.
"These figures should give a lot of confidence for 2009," said Fernand de Boer, an analyst at Petercam with a "buy" rating on Ahold. Margins at Stop & Shop widened because the chain "doesn't have to do price investments anymore."
Ahold rose 1.4 percent in Amsterdam trading, giving the company a market value of $13.5 billion. The stock has gained 2.2 percent this year, the best performance in the seven-company Bloomberg Europe Food Retailers Index, which has dropped 6.4 percent.
Operating profit as a percentage of sales was 5 percent in 2008, Ahold said. The grocer had aimed for a figure of between 4.8 percent and 5.3 percent, compared with 4.6 percent in 2007.
The fourth-quarter operating margin at the Stop & Shop/Giant-Landover unit was 5.1 percent, widening by 0.8 percentage point from the prior three months and swelling from a year earlier. That beat the 4.3 percent median estimate.
In addition to reducing promotional spending, "we have been working very hard to reduce costs," chief executive John Rishton said on a conference call, referring to the improved U.S. margins. The retailer also has increased the amount of prepared foods offered by its U.S. chains, he said.
Ahold is "well prepared" for a turbulent economy, Rishton said. "When you have a stable environment, it's relatively easy to predict what's going to happen. Our view is that we are not going to tie ourselves down to a single financial metric."
