Ahold Quarterly Profit Rises as Price Cuts Lure U.S. Shoppers
Royal Ahold NV, the Dutch owner of Stop & Shop supermarkets, said first-quarter profit rose 46 percent as higher earnings in the Netherlands offset sliding margins at its U.S. operations.
Net income climbed to 274 million euros ($337 million) from 188 million euros a year earlier, the Amsterdam-based company said today. That trailed the average 277 million-euro estimate in a Bloomberg survey of 10 analysts. Revenue rose 1 percent to 8.74 billion euros.
Sales at Ahold’s Albert Heijn stores open at least a year increased 2.8 percent as the biggest Dutch supermarket chain gained share from competitors. That boosted operating profit as a percentage of sales to 6.9 percent, above the company’s mid- term target of 5 percent. In the U.S., Ahold embarked on a second round of savings to further lower prices.
“Those price cuts will continue,” said Richard Withagen, an analyst at SNS Securities in Amsterdam. “There’s price pressure from the input side on your assortment and you have to further cut prices versus your rivals.”
Ahold fell 1.6 percent to 10.39 euros in Amsterdam trading, the only loser in the AEX benchmark index, which rose 2.1 percent. The shares erased an earlier 1.2 percent gain today, capping the stock’s increase this year to 12 percent.
“Promotional activity is essential to drive activity in stores,” Chief Executive Officer John Rishton said on a conference call. “Consumers continue to be cautious.”
Price cuts in the U.S., where Ahold gets the majority of sales, eroded profitability, Chief Financial Officer Kimberly Ross said on the call. Operating profit in the region was 4.2 percent of sales, down from 4.6 percent a year earlier.
“In the second quarter, you’ll also see margin pressure in the U.S.,” said Withagen, who recommends investors buy Ahold stock. Withagen expects profit margins in the U.S. to rise again in the third and fourth quarter, helped by savings and inflation.
Sales, including gasoline, at stores open at least a year rose 1.7 percent in the U.S. Ahold is outpacing rivals in the region, including Supervalu Inc., by lowering prices, increasing promotions and offering cheaper private-label alternatives.
Supervalu reported a 6.8 percent drop in so-called like- for-like sales in the quarter ended Feb. 27.
In February, Ahold bought five Shaw’s stores from Supervalu. That came after the Dutch company spent $140 million for Ukrop’s Super Markets Inc. in Richmond, Virginia.