Delhaize Group's Strong Q1 Net Profit Boosted by Food Lion

BRUSSELS -- Salisbury, N.C.-based regional chain Food Lion continues to be the star performer for Delhaize Group, based here. The global retailer said on Friday that Food Lion contributed heavily to an 11.3 percent jump in net sales and other revenues, as well as a 19.7 percent increase in group share of net profit in the first quarter.

"We are pleased with these first-quarter results," said Pierre-Olivier Beckers, president and c.e.o. of Delhaize Group, in a statement. "Our sales momentum continued to be strong, particularly at Food Lion, our largest company. In Belgium, first-quarter sales were encouraging as we showed accelerating growth."

During the quarter, net sales and other revenues of Delhaize Group increased by 11.3 percent to EUR 4.8 billion. Organic sales growth amounted to 3.3 percent, and net sales and other revenues increased by 4.6 percent at identical exchange rates.

The contribution of the operations in the United States to the sales of Delhaize Group amounted to $4.1 billion, an increase of 2.9 percent over the first quarter of 2005. Comparable-store sales, excluding the effect of the timing of Easter, increased by 1.7 percent. Including the effect of Easter, comparable-store sales growth was 1.4 percent.

The sales trend at Food Lion was supported by good execution in the stores; the success of the relaunch of the Greensboro and Baltimore markets in 2005; effective price, promotion, and marketing initiatives; and store closings by Winn-Dixie, a major competitor of Food Lion, according to Delhaize.

Food Lion continued to expand through innovative work on its store formats during the quarter. The new Food Lion prototype store located in western North Carolina opened in December of last year and is performing above expectations. The company plans to open the second of the new prototype stores, in Lyman, S.C. on June 14, Food Lion spokesman Jeff Lowrance told Progressive Grocer on Friday. "The store has gotten lot of great customer feedback," he noted.

In April 2006 Food Lion opened the fourth of its smaller, no-frills Bottom Dollar test stores, in Hickory, N.C. That store is a converted Food Lion, said Lowrance.

Food Lion is now in preparation for its relaunch in the Washington, D.C. market and the entry of the new market of Greenville-Spartanburg, S.C. In Washington approximately 80 Food Lions will be remodeled and will reopen under three separate banners of Food Lion, including 40 Bloom stores, 26 Food Lion stores, and 14 Bottom Dollar stores. In the Greenville-Spartanburg market, a combination of seven Bloom and four Food Lion stores will be opened in 2006.

Other U.S. banners belonging to Delhaize had mixed results during the quarter. Hannaford sales were soft due to weaker consumer spending associated with higher energy spending and less winter tourism, according to the company. Harveys performed well in the first quarter, while in Florida the nonconverted Kash n' Karry stores continued to suffer.

Gross margin from the U.S. operations improved by 37 basis points, primarily due to better inventory results and an improved sales mix at Food Lion. Selling, general, and administrative expenses increased as a percentage of sales by 13 basis points, mainly due to expenses related to the Sweetbay conversions, increases in health care costs, and higher utility and fuel expenses. Other operating expenses remained stable compared with the prior year.

The operating margin of the U.S. operations amounted to 5.4 percent of net sales and other revenues (5.2 percent in the first quarter of 2005). The operating profit of the U.S. business of Delhaize Group increased 7.1 percent to $223.5 million.

The company's major projects in 2006 include the conversion of all Kash n' Karry stores to Sweetbay in the Tampa-St. Petersburg market in Florida; the Food Lion market renewal in Washington, D.C.; the Greenville-Spartanburg, S.C. market entry by Food Lion; the acceleration of store openings at Hannaford; and the first conversions of Cash Fresh stores to Delhaize banners in Belgium.

"These projects and our continued focus on executional excellence give us full confidence in the achievement of our plans for 2006," said Beckers.
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