Colruyt Soars as Gross Margin Pressure Abates: Brussels Mover

Colruyt NV, Belgium’s biggest discount food retailer, rose the most in a year in Brussels trading after reporting earnings that beat analyst estimates amid easing price competition and a tighter control on costs.

Colruyt gained 3.08 euros, or 8.3 percent, to 40.08 euros, the largest advance since June 27 last year. Net income in the 12 months through March rose to 2.26 euros a share ($2.94) from 2.18 euros a year earlier. Analysts had projected profit of 2.25 euros a share, according to the average of 21 estimates compiled by Bloomberg.

Revenue growth outpacing sales gains at Delhaize Group SA and Carrefour SA in Belgium gives Halle, Belgium-based Colruyt more clout in negotiations with suppliers and the food retailer could pass on price increases to shoppers again in the six months through March. Colruyt’s gross margin widened 15 basis points, reversing a 67 basis-point contraction in the fiscal first half. An increase in payroll expenses slowed to 6 percent last year, in line with sales growth, and capital spending fell 17 percent, leaving more cash available for payouts.

“These are strong results given the market conditions with a very price-conscious consumer,” Hans D’Haese, an analyst at Bank Degroof in Brussels, wrote in an investor note. “Valuation remains relatively high, though, and the outlook blurred.”

The current fiscal year “is again expected to prove challenging due to the general economic climate and a persistently weak consumer climate,” Colruyt said in the statement.

‘More Benign’

Belgium’s consumer confidence index averaged minus 19 in the three months through June, well below the average reading of minus 8.7 in the past 10 years. The Belgian economy will stagnate this year after contracting 0.3 percent last year, the central bank forecast on June 7.

While Delhaize Chief Executive Officer Pierre-Olivier Beckers said on May 8 that the competitive environment in Belgium had become “more benign,” Delhaize also said June 13 that it gained 48 basis points of market share since April, recouping a 43 basis-point loss in the January-March period.

Colruyt plans to raise its dividend 5.3 percent to 1 euro a share, surpassing the 98 cents that was projected by Bloomberg research and analysis. Its cash holdings had swollen to 503.9 million euros by the end of March, a 195.6 million-euro increase from a year earlier, amid a decrease in capital spending, reduced shares buybacks, lower inventories and an increase in trade payables.

Before it's here, it's on the Bloomberg Terminal.