Ahold Delhaize reports Q2 results

Ahold Delhaize reported Q2 results on Aug. 8, noting that group net sales grew .7% at constant rates, while comparable sales excluding gasoline increased by .6%. Excluding calendar shifts, the latter would have been 1 percentage points higher.

Commenting on the results, Frans Muller, president and CEO of Ahold Delhaize said, "I am pleased to report a second quarter performance that places us well on track to achieve our strategic aspirations and financial goals for 2024. It has been a busy quarter, as we launched our refreshed company strategy, 'Growing Together,' internally and externally. As I said in May, we have a strong foundation, and we are ready to set the pace for change in our industry. We believe we have a very compelling set of ambitions, which, on delivery, will yield strong growth for our company and our stakeholders."

Muller pointed out that at the same time, the company saw strong and improving momentum at its brands in both regions. 

"As inflation moderated and promotional opportunities increased, supported by vendors, our brands continued to deliver great value to customers, leveraging their loyalty programs and broad assortment of national and own-brand products, and offering a seamless shopping experience both online and in-store," Muller noted.

Muller went on to say that as growth rates in the industry normalize, the company's omnichannel ecosystems are proving a major competitive advantage and source of market share gains. In Q2, online sales were again fueled by double-digit growth in online grocery in both Europe and the U.S., excluding the divestment of FreshDirect.

Muller continued, "Here we are seeing both new customer growth and strong customer retention. At the same time, we are making strides in ecommerce profitability. In the U.S., the shift in demand to more profitable channels and our initiatives to optimize the store-first fulfillment model are paying off. In the Netherlands, Albert Heijn has opened its second fully automated Home Shop Center (HSC) in Zwolle. Our experience with the Barendrecht facility, which is performing above expectations in areas such as order completeness and order window optionality, gives us confidence that we have the right model and technological setup to deliver great customer service in an economical way in the long-term."

Muller said the company is also well on track with its Save for Our Customers program for 2024. :In addition, we are starting to benefit from structural changes in our business related to the Belgium Future Plan and cost savings initiatives in Europe and the U.S. that were initiated over the past 12 months. Our delivery of an underlying operating margin of 4.2% puts us in a good position to take further steps this year to accelerate growth investments, and comes at a time when we see encouraging volume trends in both regions," he said.

"With the strong operational execution by our teams and associates in the quarter, diluted underlying EPS was €0.65, an increase of 4.5% at actual rates. On an IFRS basis, we delivered operating income of €790 million and diluted EPS of €0.53. IFRS results were negatively impacted by non-recurring costs, largely related to the costs associated with the transition of stores as part of the Belgium Future Plan. As a result, I am pleased to report that we will pay an interim dividend of €0.50 per share, in line with our dividend policy."

[Read more: Ahold Delhaize to close select underperforming Stop & Shop grocery stores this year]

Muller provided the following results: “In the U.S., net sales declined by 1.5% at constant rates, while comparable sales growth excluding gasoline declined by 0.4%, negatively impacted by 1.2 percentage points from calendar shifts. Therefore, excluding the impacts of calendar shifts and the divestment of FreshDirect, we saw a sequential improvement in growth rates during the quarter, as volume trends continued on a positive trajectory. By putting increased attention on the value of own-brand products while making it easier to earn loyalty rewards, the U.S. brands are laser-focused on investing in our winning customer value proposition. One example of this is the 'Compare & Save’ campaigns at Stop & Shop and Giant Food, which are trending favorably with higher sales, in both dollars and units."

Emphasizing that during Strategy Day in May, the company communicated that it would take decisive and deliberate actions to ensure a stable and thriving future for Stop & Shop, Muller said, "We’re moving forward confidently in three key areas. First, delighting customers through improvements to the customer value proposition and differentiation. Second, improving the cost structure. And third, optimizing the store portfolio. Regarding the latter, Stop & Shop will close 32 underperforming stores by year end. We expect to recognize a net impact to sales, in 2024, of between $100 and $125 million and, in 2025, between $550 and $575 million. We also expect to recognize a non-recurring pre-tax charge of between $160 and $210 million in Q3 2024. By creating a healthy store base, the team at Stop & Shop will be able to focus attention on the markets that are most important, including those where the brand has strong density, holds a strong market position or has stores that are performing well."

Muller pointed out that in Europe, as inflation rates moderate compared to a year ago, the company's brands are doubling down on their winning strategies to drive market share growth, for example, by offering compelling promotions to drive customer traffic and expanding the assortment of 'Price favorites.’ Net sales in Europe grew by 4.3% at constant rates, while comparable sales growth excluding gasoline was 2.4%, despite the end of tobacco sales at Albert Heijn, which had a negative impact of 2.1 percentage points. 

"At Delhaize Belgium, to date, 108 stores have been transitioned to their new owners, and we expect that conversions will be completed in Q4. The improved customer experience has already resulted in Delhaize's market shares exceeding preannouncement levels. In addition, the higher sales leverage and change in operating model, along with cycling the impact from prior year strikes, have contributed to the recovery of underlying operating margin in Europe, which reached 3.7%," Muller said.

Muller also said, “Our purpose and commitments go beyond our quarterly financial performance. We remain dedicated to advancing our journey towards healthier communities and planet, a cornerstone of our Growing Together strategy. Together with associates, customers, communities and our supply-chain partners, we are increasing cooperation to drive a positive impact. I am proud that, in July, we started a sponsorship with The Global FoodBanking Network, through which we are playing a crucial role in redirecting surplus, nutritious food to those who need it most. We also published our 2024 Human Rights Report, which provides an update on our progress over the past two years on our Roadmap on Human Rights. The report includes several major updates to our Standards of Engagement for suppliers and highlights of our brands’ initiatives to improve conditions for workers across the value chain.

Muller pointed out that with positive momentum going into the second half of the year, he is confident that "we are more than well on track to achieve our commitments for 2024. The stronger-than-planned performance in the first half of 2024 provides opportunities to already take some further actions in support of our Growing Together strategy and financial long-term ambitions in the second half of 2024, in particular, initiatives such as those we have just announced at Stop & Shop as well as other price investments we outlined in our new strategy. With the economic environment remaining dynamic, focusing on our growth plan and keeping our own house in order will ensure we are well positioned to drive brand strength and market share growth in the coming periods. We are excited by the potential of our plan and the value creation potential we are striving to unlock.”

[Read more: Ahold Delhaize USA inks agreement with Mark Cuban Cost Plus Drug Company]

Group highlights:

Group net sales were €22.3 billion, an increase of 0.7% at constant exchange rates and up 1.2% at actual exchange rates. Group net sales were driven by comparable sales growth excluding gasoline of 0.6% and net store openings, including the conversion of Jan Linders stores. Group net sales growth was partially offset by the divestment of FreshDirect and lower gasoline sales. Q2 Group comparable sales excluding gasoline had a net negative impact of approximately 1.0 percentage point from calendar shifts, related to Easter and the Fourth of July, and a 0.7 percentage-point negative impact from the cessation of tobacco sales at own-operated supermarkets in the Netherlands, which was partially offset by an approximate 0.2 percentage-point positive impact from cycling prior year strikes in Belgium.

In Q2, Group online sales increased by 3.4% at constant exchange rates, negatively impacted by 8.0 percentage points due to the divestment of FreshDirect. This was offset by double-digit growth at Food Lion, Hannaford, The Giant Company and Albert Heijn.

Group underlying operating margin was 4.2%, an increase of 0.1 percentage points at constant exchange rates due to strong performance in both the U.S. and Europe.

In Q2, Group IFRS operating income was €790 million, representing an IFRS operating margin of 3.5%. IFRS results were €143 million lower than underlying results, largely due to costs related to the Belgium Future Plan.

Diluted EPS was €0.53 and diluted underlying EPS was €0.65, up 4.5% at actual currency rates compared to last year's results.

In the quarter, Ahold Delhaize purchased 10.3 million own shares for €287 million, bringing the total amount to €501 million in the first half of the year. The 2024 interim dividend is €0.50, compared to €0.49 in 2023, and is in line with the Group's interim dividend policy.

U.S. highlights:

U.S. net sales were €13.6 billion, a decrease of 1.5% at constant exchange rates and down 0.4% at actual exchange rates. U.S. comparable sales excluding gasoline decreased by 0.4%, and there was a net negative impact of approximately 1.2 percentage points from calendar shifts related to the timing of Easter and the Fourth of July. Strong growth in pharmacy was offset by moderating inflation rates, the divestment of FreshDirect and lower gasoline sales. Food Lion and Hannaford continue to lead the U.S. brands' performance, with 47 and 12 consecutive quarters of positive sales growth, respectively.

In Q2, online sales declined 2.9% in constant currency, negatively impacted by 16.9 percentage points due to the divestment of FreshDirect. This was partially offset by double-digit growth at Food Lion, Hannaford and The Giant Company.

Underlying operating margin in the U.S. was 4.7%, up 0.1 percentage points due to increased vendor allowances and the benefit from cost savings initiatives implemented over the past 12 months, including the divestment of FreshDirect. "This was partially offset by higher store labor and hired service costs and lower sales leverage. The strong performance provides us with opportunities to take further actions in support of our Growing Together strategy in the second half of the year," he said.

In Q2, U.S. IFRS operating margin was 4.5%. IFRS results were €18 million lower than underlying results, in part due to restructuring costs related to the reorganization of U.S. support roles.

Europe highlights:

European net sales were €8.8 billion, an increase of 4.3% at constant exchange rates and 3.8% at actual exchange rates. The higher net sales were largely due to an increase in comparable sales of 2.4% and net store openings, including the conversion of Jan Linders stores. Europe's comparable sales excluding gasoline included a net negative impact of 2.1 percentage points resulting from the cessation of tobacco sales at own-operated supermarkets in the Netherlands and net negative impact of 0.7 percentage points from calendar shifts related to Easter, which offset the positive impact of 0.5 percentage points from cycling prior year strikes in Belgium.

In Q2, online sales increased by 9.3%, driven by double-digit growth in grocery online sales.

Underlying operating margin in Europe was 3.7%, up 0.5 percentage points. The increase was driven by performance recovery in Belgium, due to cycling prior year strikes and the change in operating model, as well as lower energy costs across the region, the company said, noting, "It was partially offset by higher labor costs, primarily at Albert Heijn, and an increase in the non-cash service charge for the Netherlands' employee pension plan. Europe's Q2 IFRS operating margin was 2.3%. IFRS results were €122 million lower than underlying results, largely due to costs associated with the Belgium Future Plan."

Outlook:

Ahold Delhaize reiterated the Group's 2024 outlook, which it announced when it published its Q4 2023 results. Underlying operating margin is expected to be 4.0% or higher, in line with the company's historical profile. Underlying EPS is expected to be at around 2023 levels at current exchange rates. Free cash flow is expected to be around €2.3 billion. Net capital expenditures are expected to total around €2.2 billion, lower than the prior year, mainly due to divestments of facilities in the U.S. "Overall, we continue to maintain strong levels of investments into our brands' store networks, the further rollout of omnichannel capabilities, and advancing our healthy and sustainable initiatives," Muller said.