Join +750K new investors every month who copy stock picks from billionaire's portfoliosSign Up Free

Supermarket group Ahold Delhaize reassures investors with cost cuts

Published 14/02/2024, 11:10
© Reuters. A logo of Albert Heijn is seen inside a shop operated by Ahold Delhaize, the Dutch-Belgian supermarket operator, in Eindhoven, Netherlands, January 23, 2019. REUTERS/Eva Plevier

By Diana Mandia and Helen Reid

(Reuters) - Supermarket group Ahold Delhaize reported a stronger than expected fourth-quarter operating margin on Wednesday and said it will maintain "a relentless focus on cost" to protect profitability as slowing food inflation pressures grocers.

The group, which operates chains including Stop & Shop, Food Lion and Hannaford in the United States and Albert Heijn and Delhaize in the Netherlands and Belgium, reported an underlying operating margin of 4.3% for the fourth quarter, beating analysts' expectations of 4%.

That drove shares in Ahold up more than 4% by 0900 GMT, following a decline of around 16% over the last six months.

The group said it expects a margin of more than 4% this year and free cash flow of around 2.3 billion euros.

In November, Ahold Delhaize trimmed 2023 earnings guidance after flagging margin weakness in the United States after two years of inflation-driven profit gains across the sector.

"Today it has reassured on a number of bear points: sales growth in the U.S. hasn't fallen off a cliff, margin in the U.S. has been resilient... this reassures investors that what you're getting is more of the same," said Tom Lemaigre, European equities portfolio manager at Janus Henderson in London.

"A lot of the bear theses that were out there can be somewhat quashed with this set of results."

Ahold's fourth-quarter margin in the U.S. was 5.2%, up 0.4 percentage points, while its margin in Europe fell 0.3 percentage points to 3.7%.

"Inflation is coming down so our topline is under pressure, while the bottom line still has high inflation on cost, so that's the challenge we have," Chief Financial Officer Jolanda Poots-Bijl, who started in the role in October, said in an interview.

"What we do to improve our margin is, I think as we've done for the last decade, (keep) a relentless focus on cost."

Ahold Delhaize generated more than 1.25 billion euros in cost savings in 2023, and CEO Frans Muller said cost management is more important than ever as global conflicts disrupt supply chains and add to price volatility.

Wages, a significant portion of costs for the supermarket retailer, increased by an average of 10% in Europe last year, Poots-Bijl said, adding she expected wages to increase further in 2024 across Ahold's markets.

Ahold does not plan to reduce staff numbers, she added, but is working to improve productivity. The group targets cost savings of more than 1 billion euros this year.

© Reuters. A logo of Albert Heijn is seen inside a shop operated by Ahold Delhaize, the Dutch-Belgian supermarket operator, in Eindhoven, Netherlands, January 23, 2019. REUTERS/Eva Plevier

"If they're able to take out that much cost last year and then come back with another expected billion, that also helps margins at a time when sales are slowing," said Lemaigre.

($1 = 0.9331 euros)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.