Delhaize Group's Profit Falls 35 Percent in Q2, Despite Solid Performance from U.S. Banners

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Delhaize Group's Profit Falls 35 Percent in Q2, Despite Solid Performance from U.S. Banners

BRUSSELS, Belgium -- The Delhaize Group here said yesterday that its U.S. operations continued to help the company grow its sales during the second quarter -- but that wasn't enough to save its profits from dropping 35 percent as it refinanced debt and grappled with the weak dollar.

Net profit was 62.2 million euros (US $85.8 million), down from 96.9 million euros (US $133.7 million) a year earlier. The company cited a charge of 103.8 million euros ($143.18 million) as it refinanced 800,000 euros (US $1.1 billion) in debt for its American subsidiary. It said this restructuring would reduce future financial and tax expenses, and improve the group's debt profile.

Exchange rates depressed the strong performance results from its U.S. operations. The U.S. banners accounted for $4.5 billion in sales, an increase of 4.2 percent over the second quarter of 2006, mainly due to the continued strong sales momentum at Food Lion and Hannaford.

During the second quarter of 2007, comparable-store sales in the United States increased by 2.8 percent. During the first half of 2007, the U.S. revenues of Delhaize Group grew by 4.9 percent.

In the second quarter, total revenues of the Delhaize Group decreased by 0.4 percent, to 4.8 billion euros (US $6.6 billion, because the U.S. dollar weakened by 6.7 percent. Revenue growth at identical exchange rates was 4.7 percent, the company said.

Gross margin increased to 25.5 percent of revenues (compared with 25.2 percent in the second quarter of 2006) due to sales mix improvements (particularly in private label), price optimization, and better inventory management in Belgium and at Hannaford. In the second quarter of 2006, price reductions by Hannaford negatively impacted the gross margin, the company noted. Higher cost inflation, particularly in the United States, has generally been passed through in retail prices.

"Delhaize Group again performed well in the second quarter of 2007," said Pierre-Olivier Beckers, president and c.e.o. of Delhaize Group, in a statement. "Excluding the one-time charge related to the Delhaize America debt tender, net profit from continuing operations would have increased by 35.6 percent at identical exchange rates. We continued to roll out successful sales-building initiatives, driving our top-line growth as well as improvements in our sales mix and gross margins. This gives us confidence that we will deliver full-year results at the higher end of our guidance range."

The strong sales momentum at Food Lion was supported by effective price, promotion, and marketing initiatives; improved assortment and customer service; and the success of the market renewal initiatives, the company said.

Hannaford's sales were also strong, supported by targeted marketing initiatives and a dynamic store-opening program. To become stronger in the future, and faced with increased competitive activity in the Florida market, Sweetbay continued its more targeted price and marketing initiatives and the conversion of the Kash n' Karry stores to the Sweetbay banner, Delhaize noted.

The conversion of Kash n' Karry stores to the Sweetbay banner remains on schedule and should be completed by the end of the third quarter of 2007.

In 2008 Food Lion plans to remodel approximately 110 stores in Wilmington, N.C.; Savannah, Ga.; Richmond, Va.; and Charlottesville, Va., as part of its continued market renewal initiative, with Wilmington being the first market renewal. Current plans include a multibrand approach in markets where the company's cluster and segmentation information supports the combination of more than one brand in the marketplace.