Ahold Posts Solid 2Q, Remains Cautious

AMSTERDAM--Royal Ahold NV (AH.AE), which runs the Stop & Shop and Giant supermarket chains in the U.S., Thursday posted solid second-quarter profit growth as price cuts paid off.

Chief Executive Dick Boer said he expects "market conditions to remain difficult", as competition intensifies in the U.S. and consumer spending is drained further by economic uncertainty in Europe. Boer added Ahold is "cautious about the potential impact of rising food commodity costs, particularly in the United States for the balance of the year".

Ahold is outperforming Belgian rival Delhaize Group (DELB.BT) in the U.S., even though its flagship chains have faced fierce competition as retailers have battled to lure increasingly price-sensitive customers. Both companies generate more than half of their sales in the U.S., but Delhaize has been embroiled in a protracted store revamp program for several quarters which has eaten into its margins. Delhaize Wednesday reported a 29% fall in net profit.

Net profit rose 24.6% from a year earlier to 248 million euros ($309 million), exceeding analyst expectations of EUR241.7 million, as charges in the year-earlier period weren't repeated.

Sales rose 11.9% to EUR7.692 billion, boosted by the Easter period falling into the second quarter rather than the first like a year earlier. Operating profit rose 18.5% to EUR326 million.

The company recorded a 17.3% rise in revenue in the U.S., while in the Netherlands, where it controls about a third of the market through its Albert Heijn chain, sales were up 5.3%. In the Netherlands, which accounts for a third of Ahold's sales, the retailer is suffering from low consumer confidence as shoppers grapple with the government's austerity measures. Operating margin in the Netherlands was 5.4% compared to 6.2%, with market share at Albert Heijn slightly ahead of last year.

Earlier this month, Ahold completed the acquisition of Dutch retailers 78 C1000 and 4 Jumbo, comprising 82 stores that will be remodeled under the Albert Heijn banner. In 2011, the stores generated EUR800 million in annual revenue.

Ahold is aiming to put its excess cash to better use, as shareholders call for a higher capital yield. In March, it said it aimed to lower its cash position to EUR1 billion and invest the rest in acquisitions, raising dividends and repaying bonds with high interest rates. At the end of second quarter, it held EUR1.7 billion in cash.

Ahold shares closed Wednesday at EUR10.44, valuing the company at EUR11 billion. The shares have gained almost 30% in the past 12 months.

Write to Robert van den Oever at [e-mail]

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