Colruyt Soars as Margin Recovery Drives Profit: Brussels Mover

Colruyt NV (COLR), Belgium’s biggest discount food retailer, rose the most in 12 years in Brussels trading after reporting a surprise increase in profit amid heightened price awareness among Belgian consumers.

Colruyt gained as much as 10 percent on Euronext Brussels, the biggest intraday advance since March 2000, and traded 2.88 euros higher at 32.78 euros by 9:56 a.m. local time. Profit in the fiscal year that ended March 31 rose to 2.18 euros a share from 2.14 euros. Analysts projected a decline to 2.09 euros, according to the average of 21 estimates compiled by Bloomberg.

The retailer lured more cash-strapped shoppers with its discount format and promotions largely funded by suppliers. Increased price awareness also boosted sales of the grocer’s more profitable own-brand items and tight cost control in the second half assisted Colruyt in halting an erosion of its operating margin, which is the highest among European food retailers, according to data compiled by Bloomberg.

“Trading conditions are challenging,” Pascale Weber, an analyst at KBC Securities NV in Brussels, wrote in a note to clients. “Consumers have recently become even more focused on lowest prices, promotions and private-label products.”

Revenue growth at the grocer’s Belgian flagship Colruyt stores accelerated to 6.2 percent in the second half from 5.9 percent in the preceding period. That’s three times the growth rate of Delhaize Group SA (DELB)’s Belgian business in the six months through March. Carrefour SA (CA) reported a 1 percent increase in Belgian sales in the same period.

‘Challenging Year’

Colruyt’s gross margin, or the proportion of revenue left after subtracting costs of goods sold, widened 109 basis points to a record 26.1 percent in the second half from a year earlier. It had shrunk 28 basis points to 25.1 percent in the fiscal first half, which Colruyt attributed on Nov. 28 to bad summer weather affecting sales of meat, fruit and vegetables.

Chairman Jef Colruyt will give a profit forecast for the current fiscal year at the annual shareholders’ meeting on Sept. 26. Colruyt said yesterday that “the economic context and weakening consumer climate suggest a challenging year ahead for us, as for all retailers.”

The family-controlled company said it plans to raise its dividend by 3 cents to 95 cents a share, beating the 91 cents that was projected by Bloomberg research and analysis. Colruyt already spent 82.6 million euros on share buybacks in the 12 months through March. Its cash and short-term investments increased to 308.3 million euros at the end of the fiscal year.

To contact the reporter on this story: John Martens in Brussels at jmartens1@bloomberg.net

To contact the editor responsible for this story: Jerrold Colten at jcolten@bloomberg.net

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