Delhaize Looks to Speed Up Restructuring

Reports on Thursday are suggesting that Delhaize DEG, the Belgium-based food retailer, will speed up the restructuring of its stores in the U.S. and Belgium as it looks to boost its competitiveness. The need for the acceleration comes from the fact that the ongoing restructuring process has led to a steep fall in profit. According to Fox Business, DEG will be closing 146 stores due to the fact that they are underperforming. Most of those will be in the U.S., where Food Lion is the flagship brand. It then expects to hit its 1Q profit by roughly 125 million euros. "There are some Food Lion stores where we didn't think it made any sense to invest, they were unprofitable and in low-density areas," said Chief Financial Officer Stefan Descheemaeker. Meanwhile, CEO Pierre-Olivier Beckers said that, “It's a business model with lower capital expenditure, lower margins, but greater return at the end of the day. Though it takes time for customers to understand what the new brand is about.” Despite these moves, analysts are still expecting to see disappointing results for DEG in 2012, while the company itself admits that its operating margin will continue to be impacted investment in the U.S. and margin pressure in Southeastern Europe. The numbers speak for themselves, with net profit for 4Q dropping to 99 million euros from 190 million euros the previous year. That drop is largely because of 127 million euros in impairment charges related to the aforementioned revamp. The sales figues look batter, as they grew 7.6% to 5.64 billion euros, helped in part by the acquisition of Serbian supermarket chain Delta Maxi. In the U.S., however, stores sales were down 0.4%, with consumers cutting back on spending. As a result, Delhaize shares traded down 6.5% at 38.60 euros, on Thursday morning. On Wednesday, J.P. Morgan released a research report saying that Delhaize has reported a disappointing set of Q4 results, with a weak operating performance offset by lower tax and net interest, and that it believes investors will continue to focus on the continued deterioration in the underlying US operating performance and these results will be deemed disappointing this morning. “Recent data points have got incrementally worse in the US, with numerous grocers citing trouble in passing on continued input cost inflation to consumers, placing further pressure on margins. We remain concerned for Delhaize's US prospect in the next 12 months, as likely gross margin pressure will be further accentuated by the restructuring and ongoing Food Lion remodel program.” On Thursday, Jefferies said that Delhaize's 4Q EBIT was 5% below JEFFe and 7% below consensus, with greater US margin pressure in the US (-140bps after -40bps in the previous nine months). “We expect the focus at the call to be on recent US margin dynamics. We note that the senior management team has now been strengthened by the arrival of Pierre Bouchot as new CFO (with his predecessor Stefan Descheemaeker now CEO of Delhaize Europe).” Meanwhile, Bank o America Merrill Lynch said that Delhaize has also announced this morning that is has appointed Pierre Bouchut (formerly CFO of Carrefour) as its new CFO replacing Stefan Descheemaeker who is moving to be CEO of Delhaize Europe. “We don't expect a major change in strategy but do expect the new CFO is keen for the group to find a floor on margins, likely helping influence the cautious outlook statement on margins.”