Delhaize Group SA (DELB), the owner of the U.S. Food Lion supermarkets, fell the most in 16 months in Brussels trading after reporting sales that missed analysts’ estimates and saying it will close 146 unprofitable stores.
Delhaize lost 5.07 euros, or 11 percent, to 41.78 euros at the 5:40 p.m. close of trading on Euronext Brussels, the biggest one-day retreat since August 2010. The food retailer has lost 26 percent of its value in the past year.
Costs related to the store closures will cut pretax profit by 205 million euros ($263 million) in the first quarter following a 120 million-euro writedown related to U.S. stores in the prior three-month period, Brussels-based Delhaize said today in a statement. Fourth-quarter sales of 5.64 billion euros missed the 5.68 billion-euro average of 11 analyst estimates compiled by Bloomberg.
“Poor sales trends and unpleasant restructuring charges,” John David Roeg, an analyst at ING Groep NV in Amsterdam, wrote in a note to investors. He has a “hold” recommendation on the shares.
Delhaize’s Food Lion stores in the southeastern U.S. have lost ground to rivals including Ruddick Corp. (RDK)’s Harris Teeter, Publix Super Markets Inc. and Kroger Co. (KR) in recent years. Sales at U.S. stores open at least a year fell 0.4 percent in the past quarter, resuming a decline that previously lasted nine quarters through March. Delhaize has cut prices, repositioned Food Lion supermarkets and introduced new formats to retain customers.
The grocer said today that it gave up on 113 Food Lion stores, will retire its 49-store Bloom brand and remodel or close all existing Bottom Dollar Food stores outside the Philadelphia area. Delhaize will also abandon 20 of the 485 stores in five eastern European countries it acquired through its July 27 purchase of Belgrade, Serbia-based Delta Maxi DOO for 933 million euros including debt. The store closures will erase about 5,000 positions globally.
Sales at Delhaize’s Belgian stores open at least a year dropped 0.6 last year and contracted in the fourth quarter by the most in six years. The food retailer got about 23 percent of revenue from its Belgian home market last year, with the U.S. accounting for 65 percent.
Delhaize also said year-end revenue in Greece was lower than expected due to the “very difficult economic environment,” without giving sales figures for its Alfa Beta supermarkets in the country. Fourth-quarter revenue at Delta Maxi was about 287 million euros and Delhaize maintained its Dec. 1 forecast for sales of 1.3 billion euros this year.
“The stock will probably be dead money for some time,” said Marc Leemans, an analyst at Banque Degroof SA in Brussels. He cut his recommendation for the shares to “hold” from “accumulate” today. “Even sales in southeastern Europe were slightly below expectations.”
The food retailer will initially lose about 500 million euros of sales, equal to 2.4 percent of annual revenue, following the store closures. Once completed, the operation should generate 40 million euros on an annual basis that Delhaize will “fully reinvest” in the remaining stores.
Delhaize plans to spend 800 million euros to 850 million euros this year opening 200 to 230 new stores and converting a combined 64 Bloom and Bottom Dollar Food outlets into Food Lion stores. The new stores will include as many as 29 additional Bottom Dollar Food supermarkets, mostly in Pennsylvania. Delhaize will also reposition an additional 600 to 700 Food Lion supermarkets after saying the brand strategy led to same-store sales growth in the 200 stores that have already been repositioned.
Today’s plunge left Delhaize trading at about 7.5 times 2012 earnings per share, based on the average of 29 analyst estimates before today’s announcement. That compares with more than 10 times earnings for Royal Ahold NV and Kroger and more than 12 times for Wal-Mart Stores Inc. (WMT)
“The stock is very cheap,” said Pascale Weber, an analyst at KBC Securities NV in Brussels. “The discount versus peers will narrow if the re-launch of Food Lion proves successful.”
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