Ahold Forecasts Dutch Margin Decline as Promotions Erode Profit

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Royal Ahold NV forecast a lower Dutch operating margin after increasing promotional activity to drive shopper spending at its Albert Heijn outlets and online platforms over the holiday period.

Earnings as a percentage of sales will drop in the fourth quarter, the Zaandam, Netherlands-based retailer said today. The company won market share as shoppers splashed out for Christmas dinners in grocery stores and seasonal presents at its Bol.com online store.

To benefit from a shift in shopping habits toward Internet purchasing, the retailer is also investing in expanding its online offer with more pick-up points and delivery areas to help meet a forecast of driving online sales to 2.5 billion euros ($2.9 billion) by the end of 2017. Same-store sales advanced 2.2 percent in the Netherlands, topping an analyst estimate of no growth.

“Positive surprise is the identical sales growth in the Netherlands and the market share gain, though against lower margins due to many promotional activities,” Gerard Rijk, analyst at SNS Securities, said today.

Ahold shares fell as much as 1.5 percent to 15.20 euros and traded at 15.29 euros a share as of 9:26 a.m. in Amsterdam.

The growth in the Netherlands helped offset the performance in the U.S., where the company lost share. Comparable sales rose

0.3 percent, trailing analysts’ estimates of a 0.5 percent advance. Ahold is cutting costs at the business, which generates more than half of its sales. “The U.S. remains weak,” Rijk said.

The company forecast free cash flow for the year to be higher than previously guided. Ahold had forecast 800 million euros in free cash flow when reporting third-quarter earnings. Ahold is scheduled to report its full fourth-quarter and full-year results on Feb. 26.