Standard & Poor's Upgrades Delhaize America

SALISBURY, N.C. - Smart financial moves have earned Delhaize America, Inc. here an upgrade from Standard & Poor's Rating Services, which Friday said it was revising its outlook on Delhaize America to positive from stable.

The ratings group affirmed the company's "BB-plus" corporate credit and other unsecured ratings, recognizing the retailer's improved financial measures, which it said are expected to continue.

"The rating on Delhaize America is based on its participating in the highly competitive supermarket industry, regional concentration, smaller scale relative to major operators, and somewhat weak credit protection measures," said S&P analysts Gerald Hirschberg and Nicolas Baudouin in a statement.

The S&P analysts pointed to the good track record of Delhaize America's core business, Food Lion (which accounts for 80 percent of its store base); increasing format diversification; and above-average operating margins.

Delhaize's comparable store sales grew 1.1 percent in 2005, following 1.5 percent growth in 2004. Meanwhile, its least-adjusted operating margin approximated 9.8 percent for the 12 months ended September 2006, comparing favorably with margins of about 7 percent for rated U.S. supermarkets.

"Progress continued into the first 39 weeks of 2006 as a result of solid sales, better price management, improved inventory control, and expanded perishables offerings, and despite higher costs related to energy and rebranding the Kash n' Karry chain to the Sweetbay banner," the analysts noted.

S&P also pointed to Delhaize America's track record of cash flow generation, a liquid balance sheet, and access to its credit facility. "The company's $500 million senior unsecured revolving credit facility due April 2010 should be sufficient to fund fixed and working capital needs and fill-in acquisitions," the report said.

Delhaize America is wholly owned by Brussels-based Delhaize Group. The company operates about 1,540 supermarkets on the East Coast, primarily under the Food Lion, Hannaford, Kash n' Karry, and Sweetbay banners.
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