Delhaize Sees Modest FY ’12, Q4 Growth

International food retailer Delhaize Group posted 2012 revenue growth of 2.9 percent and organic revenue growth of 2.1 percent, at identical exchange rates. The company also noted that 62 percent of brand repositioning for one of its U.S. banners, Food Lion, has been completed. Delhaize additionally reported an underlying operating profit decline of 17.5 percent, and free cash-flow generation of 772 million euros (USD $1 billion) at actual exchange rates.

For its fourth quarter of 2012, the company saw revenue growth of 0.3 percent and organic revenue growth of 2.5 percent, at identical exchange rates, aided by positive comparable-store sales and volume growth at Food Lion. The company attributed its underlying operating margin of 3.6 percent to ongoing price investments.

“We are particularly pleased by our strong free cash-flow generation, and we believe that we will generate an average of approximately 500 million-euro (USD $651.7 million) free cash flow per annum over 2013-2015,” said Pierre-Olivier Beckers, president and CEO of Brussels-based Delhaize. “In 2013, we will remain focused on accelerating the progress at Food Lion, revitalizing Delhaize Belgium and driving growth in southeastern Europe. We aim to remain relevant to our customers, continuing our sustainable price policies and accelerating revenue growth. We will fund this through a combination of disciplined capital allocation and cost control.”

Added Beckers: “We remain encouraged by the continuation of several positive trends we experienced during the fourth quarter of 2012, particularly in the U.S. Over time, we believe that Delhaize Group has the ability to improve its operating performance in all of its markets, by staying focused on sustainable revenue growth and strict cost management.”

In 2012, Delhaize’s U.S. operations generated revenues of $18.8 billion, a 2.2 percent decline from 2011. Excluding revenues from the 126 stores closed in February 2012, U.S. revenues grew 0.9 percent, while comps dipped 0.8 percent. During the year, a total of 537 Food Lion stores were affected by the aforementioned brand repositioning, which this year is slated to roll out to another 360 of the banner's locations.

The retail conglomerate’s U.S. gross margin fell by 107 basis points in 2012 to 26.2 percent due to price investments, particularly at Food Lion, and the negative effect from the closure of 126 stores, the company said.

In 2012, the underlying operating margin of Delhaize’s U.S. business dropped to 3.8 percent, from 4.8 percent in 2011, primarily because of price investments. Underlying operating profit fell by 23.5 percent to $705 million, and operating margin was 2.3 percent, mainly as a result of $249 million impairment and store closing charges.

Delhaize America’s fourth-quarter revenues decreased 2.1 percent to $4.7 billion, but excluding revenues from the 126 stores that closed in February 2012, U.S. revenues grew 1.4 percent. Comps were flat, excluding a negative calendar effect of 0.3 percent. Volume growth was positive because of the Food Lion brand repositioning, continued price investments at Hannaford and the expansion of Bottom Dollar Food. Retail deflation accelerated compared with the third quarter, reaching 1.5 percent. The rebranded Food Lion stores delivered comparable-store sales and volume growth during the quarter.

Also in the fourth quarter, underlying operating profit plummeted 35.7 percent to $156 million, which Delhaize attributed mainly to a decrease in gross margin resulting from price investments. Underlying operating margin for the quarter was 3.3 percent, versus 5.1 percent in the year-ago period.

With the goal of further accelerating growth at Food Lion, the next phase of Delhaize’s brand strategy, covering 180 stores mostly in the Baltimore/Washington D.C., markets, will launch in the second quarter. Additionally, the company will continue its work to boost Hannaford´s price competitiveness. The company said it hoped to partly fund the planned price investments through cost savings across Delhaize America, and improved results at Bottom Dollar Food and Sweetbay Supermarket.

In other Delhaize news, its board of directors will propose to the shareholders the appointment of Elizabeth Doherty as a new independent director. Doherty, formerly the CFO of Slough, U.K.-based Reckitt Benckiser, would join the board in May. Doherty has also worked at such well-known companies as Unilever and Tesco.