Shares of Delhaize Group (DEG) declined around 12 percent in Belgium after the food retailer said it slipped to a loss in its first quarter from prior year's profit on portfolio optimization charge and margin pressure. The company also expects lower underlying operating profit for fiscal 2012.
The Belgium-based company's first-quarter Group share in net loss was 10 million euros or 0.09 euros per share, compared to net profit of 126 million euros or 1.24 euros euros per share a year ago.
The latest results were hurt by 167 million euros of pre-tax portfolio optimization charges announced in January 2012.
Underlying operating profit, which excluded the charge, decreased 14.6 percent to 189 million euros mainly due to the decrease in underlying operating profit in the U.S. as a result of the company's decision to further invest in prices in the U.S. Underlying operating margin was 3.5 percent of revenues, compared to 4.4 percent in 2011.
Gross margin fell 86 basis points at identical exchange rates to 24.8 percent mainly as a result of its decision to invest in prices along with the lower margin of the acquired Maxi business.
Revenues for the three-month period increased 8.6 percent to 5.48 billion euros from 5.04 billion euros in the prior year. Revenues grew 5.9 percent at identical exchange rates, and organic revenue growth was 2.3 percent.
The company noted that the difficult and uncertain global economic environment continued to weigh on consumer spending notably in the U.S. and Belgium.
Revenues in the U.S. decreased 1.2 percent to $4.6 billion mainly due to closing of 126 stores in February as part of portfolio optimization. Excluding the store closures, U.S. revenues increased 0.7 percent.
"However, given that retail inflation was substantially lower in the first quarter, we are encouraged by the improvement in volume trends," the company said in its statement.
Revenues in Belgium increased 3.2 percent and revenues in Southeastern Europe and Asia grew 62.4 percent primarily as a result of the Delta Maxi acquisition. Excluding Delta Maxi, organic revenues experienced low double digit growth.
President and Chief Executive Officer Pierre-Olivier Beckers said, "Our commitment to price competitiveness, the accelerated revenue momentum in our Food Lion Phase One stores, strong revenue growth at Bottom Dollar Food, real growth in Serbia and the strength of our Alfa Beta brand, give us confidence that our strategy is delivering the intended results."
Looking forward, the company anticipates its underlying operating profit for the full year 2012 to decrease 15 percent to 20 percent at identical exchange rates from the prior year. The forecast reflects the increased focus on price competitiveness given the prevailing economic and competitive environment.
The second quarter in particular but also the third quarter underlying operating profit will be impacted by the Food Lion brand repositioning and Delhaize's price investments at Hannaford and Delhaize Belgium, the company noted. In Brussels, Delhaize shares are currently trading at 31.60 euros, down 4.33 euros or 12.05 percent, on a volume of 799, 242 million shares.
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