Delhaize's Q2 Revenue Up In U.S., Profit Down

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Delhaize's Q2 Revenue Up In U.S., Profit Down

Second-quarter revenues released yesterday for Belgium based-Delhaize Group's U.S. operations, including the Food Lion, Hannaford, and Sweetbay Supermarket banners, showed a 2.3 percent increase to $4.7 billion, supported by high retail inflation and 24 new stores, vs. the second quarter of 2007. During the first half of 2008, revenues for the U.S. group grew 3.7 percent. Comparable-store sales growth was 1.9 percent.

The U.S. group's operating profit decreased by 6.4 percent in the quarter, due to higher operating expenses as a percentage of revenues. This decrease was attributed to higher operating expenses from soft sales, the timing of market renewals that were more weighted toward the first half of 2008, higher energy costs, and expenses related to the data security breach at Hannaford. Advertising expenses were higher because of the launch of "Guiding Stars" at Food Lion, rollout of a three-tier private label program, and the On-the-Go-Bistro chilled prepared meal program in Delhaize's U.S. companies. During the first six months of 2008, the operating profit of the U.S. group decreased by 3.1 percent to $477.3 million.

The Belgian company said its overall second quarter profit increased by 43 percent over 2007. First-half results were in line with expectations. The U.S. group of Delhaize constitutes 70 percent of the company, making it vulnerable to weakness in the U.S. dollar.

Delhaize reported that it had seen a reduction in the number of items purchased per visit at its Food Lion and Hannaford chains during the second quarter, and attributed the change to cutbacks in consumer spending. The picture was different at Sweetbay, where the Belgian company made "strategic price investments" last summer that increased the chain's transaction numbers and created the strongest comparable-store sales growth of the three U.S. companies.

Private label revenues increased for Delhaize in the United States, especially at Food Lion, where second-quarter private label penetration increased by almost 150 basis points compared with the same period last year. The rollout of a three-tier private label program and trading down by consumers were given as reasons for the increase

"In the second quarter of 2008, our revenues grew at a rate that is reflective of the current economic environment with consumers' purchasing power under pressure," said Delhaize Group president and c.e.o. Pierre-Olivier Beckers. "In this context, we have been increasingly focusing on our price position. We are fortunate to have our most powerful private label offering ever, giving our customers high-quality alternatives at great prices."

Gross margin increased slightly in the second quarter, mainly due to product mix changes at Food Lion, through an increase in private label sales in both fresh and dry grocery categories. Cost inflation was largely passed on to the consumer, with the exception of Sweetbay, where price investments started in the summer of 2007 continued. In June Hannaford reduced prices on over 1,500 products for price competitiveness.

At the end of June 2008, Delhaize Group operated 1,575 supermarkets in the United States. In the second quarter, Food Lion relaunched 58 stores as part of its market renewal program in Savannah, Ga. and Wilmington, N.C. The market renewal programs, started in 2005, have now covered about 500 stores and nine markets. During the first six months of 2008, Food Lion opened 11 new stores, closed or relocated 17 stores, and remodeled six. Hannaford remodeled two stores and relocated one.

In 2008 Delhaize Group plans to open between 37 and 42 new supermarkets in the United States and close about 13 stores. Of these 13 stores, seven will be relocated, resulting in a net increase of 24 to 29 stores. About 150 U.S. stores will be remodeled in 2008. Food Lion will remodel 141 stores as part of its market and store renewal programs. Two more market renewals are planned by Food Lion for the year 2008 in Richmond and Charlottesville, Va.

In other Delhaize news, the conglomerate will add former Revlon c.e.o. Jack L. Stahl to its board. Stahl headed Revlon from 2002 until he retired in 2006, and was also an executive at Coca-Cola for 22 years. He replaces William L. Roper, who has left the board to pursue other opportunities.