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Sales Strong, Operating Profits Down for Q1 at Delhaize U.S.

Competitive pricing and growing private label programs helped Delhaize Group sales growth going at its U.S. banners in the first quarter of 2008, the company said yesterday. Yet the global retailer posted lower-than-expected operating profit overall, affected by a weakened U.S. dollar, project renewals, advertising expenses, and fuel costs.

Operating profit for the supermarket group came in at 205.7 million euros ($316.66 million), down from 229.6 million ($353.4 million) last year and lower than forecasts of between 214.0 million euros and 222.5 million. The company said it expects to see the majority of its profit growth during the second half of the year.
Revenues from Delhaize's U.S. operations -- Food Lion, Hannaford, and Sweetbay -- grew 5.1 percent to $4.6 billion during the quarter, buoyed by comparable store sales growth of 3.5 percent (3.3 percent excluding the impact of Easter) and more store openings, particularly at Food Lion, which added 15 units compared to the year-ago period.

"In this increasingly uncertain economic environment, all of our operating companies have focused successfully on keeping their customers loyal to their stores, providing strong revenue growth in the first quarter," Pierre-Olivier Beckers, president and c.e.o. of Delhaize Group, said in a statement.

"Our competitive pricing and growing private label offering in particular have been instrumental in assuring sales momentum. We continue to focus on many sales and cost efficiency initiatives that will have increased impact in the second part of the year and will allow us to continue to offer highly competitive prices and to support our profitability. We fully expect to emerge from the weaker economic environment an even stronger company than we are today."

Revenues in the U.S. in the first quarter were supported by high retail inflation and more customer transactions in all U.S. operating companies, the company said. The average number of items sold per transaction decreased at Food Lion and Hannaford, which Delhaize said reflected more careful consumer spending. Private label revenues increased significantly, it added.

At Food Lion, retail modifications based on Delhaize's customer segmentation work were further implemented in the quarter. In the 200 stores where the rollout is the most advanced, revenue growth exceeded total company revenue growth, the company said. Food Lion's 100 stores that were renewed in 2007 showed double-digit revenue growth. Hannaford achieved revenue and market share growth supported by its "competitive pricing and innovative strategy."

Meanwhile, revenues at Sweetbay evolved favorably due to the reinforcement of the Sweetbay brand and more competitive pricing since the middle of last year, according to the company.

During the quarter, operating profit remained stable at identical exchange rates, while operating margin decreased to 5.2 percent of revenues (5.5 percent in the first quarter of 2007). Gross margin increased due to favorable product mix changes at Food Lion (primarily through more private label and fresh product sales), and price optimization at Food Lion and Hannaford, the company said. Cost inflation was largely passed through to the consumer, with the exception of Sweetbay, where price investments that started in the summer of 2007 continued.

Operating expenses increased particularly due to earlier market renewals at Food Lion, in addition to higher advertising and fuel costs.

In 2008, Delhaize Group plans to open between 50 and 55 new supermarkets in the U.S. In addition, the company plans to close approximately 18 stores, of which nine will be relocated, resulting in a net increase of 32 to 37 stores. Approximately 150 U.S. stores will be remodeled in 2008.

Food Lion will remodel 141 stores as part of its market and store renewal programs. Four market renewals are planned by Food Lion for the year 2008: Wilmington, N.C.; Richmond, Va.; Charlottesville, Va., and Savannah, Ga.
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