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Delhaize Group Reports Mixed Q1

BRUSSELS, Belgium -- Delhaize Group, the parent company of U.S. retailers Food Lion, Hannaford, Kash n' Karry, and Harvey's, yesterday reported first quarter performance that reflected the company's current challenges in the highly competitive Southeast market.

The retailer, which derives 80 percent of its sales from the U.S. division, reported comparable stores sales growth of only 0.5 percent. It also lowered sales forecasts for the current year.

On the other hand, better margin management, particularly at Food Lion and Delhaize Belgium, drove an increase in gross margin to 25.3 percent of net sales and other revenues in the first quarter. Net profit increased by 106.2 percent to EUR 81.3 million, or 1.9 percent of net sales and other revenues. The performance, however, was lower than expectations.

Delhaize Group overall posted organic sales growth of 1.5 percent for the first quarter. Net sales and other revenues, however, decreased by 0.2 percent to EUR 4.3 billion, impacted by the weakening of the U.S. dollar by 4.7 percent versus the euro, the company said.

At identical exchange rates, net sales and other revenues increased by 3.1 percent due largely to a 4.3 percent increase in U.S. sales, supported by the integration of Victory.

"Delhaize Group continues to be focused on sustainable growth initiatives to support our sales momentum in key markets during the remainder of the year," said president and c.e.o. Pierre-Olivier Beckers in a statement. "In the U.S., Food Lion is preparing the launch of a third market renewal in Greensboro, North Carolina, in the early summer, and the Victory integration with Hannaford is proceeding according to plan. The reactions of customers to the Sweetbay launch are exceeding our expectations. In Belgium, we plan to complete the Cash Fresh acquisition in the second quarter pending the decision of the competition authorities."

In the first quarter of 2005, the contribution of the operations in the United States to the sales of Delhaize Group were $4.0 billion, an increase of 4.3 percent over the first quarter of 2004. Comparable store sales, adjusted for the timing of Easter, increased by 0.3 percent in the first quarter of 2005 (compared to 2.5 percent in the first quarter of 2004). Sales continued to be strong at Hannaford and Kash n' Karry. Sales growth at Food Lion and Harveys slowed, however, primarily due to increased competitive activity and consumer pressure due to rising gasoline prices.

In the first quarter of 2005, Delhaize Group opened 10 new supermarkets in the U.S., including two relocated stores, resulting in a net increase of eight stores. Additionally, six U.S. stores were remodeled or expanded, and six Food Lion stores were converted to the Harveys banner. In the second quarter, Food Lion will launch its third market renewal program in Greensboro, N.C., and it is in full preparation to renew its Baltimore, Maryland market in the fall of 2005.

During the first quarter, Hannaford worked intensively on the integration of the 19 acquired Victory supermarkets. The point of sale, inventory, and store deliveries systems have been changed. The supply chain was switched to Hannaford's self-distribution structure in January. Victory started to introduce Hannaford's private label products and the prices of thousands of products were lowered to align Victory to Hannaford's EDLP pricing strategy. During the first quarter of 2005, two Victory stores were converted to the Hannaford banner. The remaining stores will be converted by the end of the year.

During the first quarter of 2005, Kash n' Karry stores in the Naples/Ft. Myers market were relaunched under the Sweetbay Supermarket brand. Currently, 10 Sweetbay stores are in operation, and the results have exceeded management's expectations, according to the company. Approximately 20 more stores will be converted or opened under the Sweetbay banner by the end of 2005.
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