Delhaize Group Updates 2008 Full-Year Outlook and Releases Preliminary Second Quarter Results

 

In 2008, Delhaize Group expects its net profit from continued operations to grow by 15 to 20% instead of 25 to 30% as previously announced. Revenues are expected to increase between 3.0% and 4.5% compared to between 4.0% and 5.5% previously announced. U.S. comparable stores sales are expected to grow between 1.5% and 2.5% (2.5% to 3.5% previously). Operating profit growth is expected to be flat to 3.0% compared with 6.0% to 8.0% previously. All of these expectations are at identical exchange rates and excluding the 53^rd trading week in the U.S. in 2008 and the acquisition of Plus Hellas.

 

In the U.S. as well as in our European markets, consumers are changing their spending behavior as a result of higher oil and food prices and the continued problems in the financial and real estate markets. They are trading down and purchasing fewer items per visit. Although private label sales continue to grow both in the U.S. and Europe, resulting in an improvement of the sales mix and supporting gross margin, the net impact to our business has been lower sales growth than expected, and this will also deliver more modest profit growth than planned .

 

Delhaize Group will report its second quarter results on August 4, 2008 as planned. Projected revenues for the quarter are approximately EUR 4.5 billion, a decrease compared with the previous year of 7.5% at actual exchange rates and an increase of 2.6% at identical exchange rates. Comparable stores sales growth is projected to be 1.9% for the U.S. (1.0% non-adjusted for the timing of Easter) and 0.7% for Delhaize Belgium (0.4% non-adjusted for the effect of the forced closing of company-operated stores on May 2, 2008).

 

In the second quarter of 2008, operating profit is projected to be approximately EUR 194 million, a decrease of 22.0% versus the same quarter of last year at actual exchange rates and of 12.3% at identical exchange rates. The year-over-year comparison is negatively impacted by EUR 6.5 million due to integration costs of Plus Hellas since its acquisition on April 1, 2008, and by the divestiture of Di and the sale of Cash Fresh stores to affiliated owners (net effect of EUR 4 million). Excluding both elements, operating profit would have decreased by 7.9% at identical exchange rates for the quarter.

 

 

 “In this challenging market environment, we remain focused on reinforcing our store concepts and execution, supported by our experienced management teams and strong profitability and balance sheet,” said Pierre-Olivier Beckers, President and Chief Executive Officer of Delhaize Group. “To increase our relevance to the pressured consumers, all of our operating companies continue to build their private label offering and to increase their price competitiveness and promotional activity.”

 

“While the current environment requires us to address short-term market challenges, we remain focused on our long-term strategic commitments. We are implementing sustainable gross margin and cost-cutting measures to reinvest in our business and protect our bottom line,” according to Mr. Beckers. “And we continue to invest in long-term projects such as the rollout of private label programs, the implementation of new systems, the remodeling of our store network and accelerating our store openings, so that when the economic conditions improve and consumer confidence returns, we will be in a strong position to reap the benefits.”

 

Delhaize Group’s operating companies have identified opportunities and implemented measures to save more than EUR 60 million before year-end. These sustainable cost savings include better store labor scheduling, lower transportation and warehousing expenses as a result of efficiency gains, more efficient advertising spend, improved conditions on supplies, maintenance and less spending on travel, consulting and other miscellaneous expenses.

 

Delhaize Belgium is also progressing well with its plan Excel 2008-2010. The plan combines sales building initiatives with cost and efficiency initiatives. Its sales initiatives are beginning to gain traction as the number of customer transactions continued to increase in the second quarter of 2008 and the market share trend improved throughout the year.

 

Delhaize Belgium continues to roll out many cost and efficiency projects such as mixed transportation, shelf ready packaging (SRP), a new distribution center for fresh products and the implementation of computer-assisted ordering. Also, inventory losses at store level continue to evolve favorably due to the impact of the inventory management system, ACIS. As a consequence, we expect, as previously announced, the operating margin of Delhaize Belgium in 2008 to be around the same level as in 2007.

 

 

Including the effects of the 53^rd week in the U.S. and the acquisition of Plus Hellas, revenue growth of Delhaize Group is expected to be between 4.7% and 6.2% in 2008, and operating profit growth between 1% and 4% (all at identical exchange rates).

 

Our full year 2008 earnings growth will be entirely weighted towards the second half of the year. The reasons for this are:

·           timing of the expected positive earnings impact from market renewals at Food Lion, with

higher remodeling costs in the first half of 2008 compared to 2007;

·           roll-out costs of the U.S. private label program in the first half of 2008;

·           timing of the EUR 60 million planned cost and efficiency savings;

·           timing of store openings in the Group.

 

Additionally, the second half of 2007 is an easier basis for comparison mainly due the major price investments made at Hannaford and Sweetbay and the weaker results of Delhaize Belgium in the second half of 2007, as well as the Sweetbay impairment charge in the fourth quarter of 2007.