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Delhaize Drops as U.S. Margins Seen Shrinking: Brussels Mover

A Delhaize Group SA Food Lion Supermarket
Delhaize Group SA, the owner of the Food Lion supermarkets, fell to the lowest value in more than three years in Brussels after saying margins will shrink again this year on U.S. price cuts and Bottom Dollar Food store openings. Photographer: Davis Turner/Bloomberg

March 8 (Bloomberg) -- Delhaize Group SA, the owner of the Food Lion supermarkets, fell to the lowest value in more than three years in Brussels after saying margins will shrink again this year on U.S. price cuts and Bottom Dollar Food store openings.

Delhaize declined as much as 6.1 percent to 38.76 euros, the lowest price since October 2008, and traded 2.37 euros lower at 38.90 euros by 9:37 a.m. The shares have lost 32 percent in the past 12 months.

“A hard landing in the U.S. due to a tactical error,” Pascale Weber, an analyst at KBC Securities in Brussels, wrote in an investor note. “Delhaize America decided to pass on cost inflation in the fourth quarter. This led to a collapse in volumes.” Weber lowered her price estimate for the shares by 18 percent to 45 euros.

Delhaize is seeking to turn around its U.S. business after the Food Lion stores in the southeast have lost ground to rivals including Ruddick Corp.’s Harris Teeter, Publix Super Markets Inc. and Kroger Co. in recent years. The Brussels-based grocer will close about 126 unprofitable stores, reposition an additional 600 to 700 Food Lion supermarkets following a successful turnaround in Raleigh, North Carolina, and plans an expansion into Pennsylvania with Bottom Dollar Food outlets.

Sales at U.S. stores open at least a year fell 0.4 percent in the final three months, resuming a decline that previously lasted nine quarters through March 2011. Operating profit before currency swings fell 14 percent in the fourth quarter, led by a 20 percent drop in the U.S. and Delhaize said its group margin will continue to be impacted by price reductions in the U.S. and accelerated openings of Bottom Dollar Food stores. Delhaize’s operating margin contracted 56 basis points to 4.43 percent last year, the lowest in eight years, according to data compiled by Bloomberg.

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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