Delhaize Group SA (DELB), the Belgian food retailer that gets 64 percent of revenue from the U.S., lowered its dividend for the first time in 10 years after saying U.S. margins will continue to shrink this year because of price cuts.
Delhaize investors will see their payout reduced by 20 percent to 1.40 euros a share, which exceeds last year’s profit of 1.04 euros a share and compares with 1.52 euros forecast by Bloomberg research and analysis. A decline in the U.S operating margin will “moderate” this year after shrinking 1.8 percentage points to 3.3 percent in the fourth quarter, the Brussels-based company said in a presentation today.
“The split of EBIT and dividend is the news and both are as disappointing as expected,” Andrew Gwynn, an analyst at Exane BNP Paribas in London, wrote in an investor note. “The guidance reads like a bit of warning to us.”
Delhaize’s U.S. operating margin will contract to 3.5 percent of revenue from 3.8 percent last year, according to the average of 16 analyst estimates compiled by the company. They had projected a U.S. margin of 3.6 percent in the fourth quarter.
The grocer extended price cuts last year as it sought to halt a slide in sales at the Food Lion supermarkets in the southeastern U.S., fend off competitors such as ShopRite to its Hannaford banner in the northeast and win back shoppers lost to discounter Colruyt NV in its Belgian home market. Cost savings and narrowing losses at Bottom Dollar Food and Sweetbay will “partly” fund additional price cuts this year, Delhaize said in a statement.
Delhaize rose as much as 6.2 percent to 39 euros in Brussels trading, after earlier dropping as much as 4.5 percent. The shares traded at 38.55 euros, or 4.9 percent higher, at 9:54 a.m. local time.
Net debt fell to 2.06 billion euros from 2.65 billion euros a year earlier. Delhaize repeated its forecast for annual free cash flow of an average of 500 million euros in the three years through 2015.
The repositioning of an additional 180 Food Lion stores will begin in the second quarter, Delhaize said. So far, about 62 percent of the 1,127 stores have been included in the brand overhaul and permanent price cuts for dairy and frozen foods as of late October helped to generate same-store sales growth in those 703 supermarkets in the fourth quarter, Delhaize said on Jan. 17.
Bottom Dollar Food, Delhaize’s discount store format in the Philadelphia and Pittsburgh areas, won’t be profitable before 2015, Chief Financial Officer Pierre Bouchut said on a conference call in January. The closure of 34 unprofitable Sweetbay stores in February was ‘a first step to stop the bleeding” pending a “more structural solution” for the Florida banner, he said.
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