Supermarket retailer Koninklijke Ahold Delhaize NV said it has squeezed fatter margins from its operations at a time when many of its competitors are struggling.
The company, which operates grocery chains in the U.S. including Food Lion, Hannaford and Stop & Shop, reported that its underlying operating margin on a pro forma basis in the fourth quarter of 2017 edged up to 4% from 3.9% in the year-ago period. In the U.S., its underlying operating margin increased from 4% to 4.2%.
For the year ended Dec. 31, 2017, Ahold Delhaize's underlying operating margin increased 20 basis points year over year to 3.9% from 3.7%. In contrast, Walmart Inc.'s operating margin in the fiscal year ended Jan. 31 shrank to 4.1% from 4.7% in the prior fiscal year, according to S&P Capital IQ.
Ahold Delhaize CFO Jeff Carr said during a Feb. 28 earnings call with analysts that it was "an impressive performance at a time when many of our competitors are experiencing margin contraction."
Ahold Delhaize, based in Amsterdam, attributed its higher margin to synergies realized from the 2016 merger of Ahold and Belgium's Delhaize. The company had achieved €268 million in synergies from the deal by the end of 2017, a figure it forecast will escalate to €420 million by the end of 2018 as it continues to reap savings. It targets cumulative synergies of €750 million in 2019.
CEO Dick Boer said during the call that the U.S. market was price-driven, with shoppers' habits influenced by promotions. Ahold Delhaize enjoyed success with increased penetration of its own brands, boosted by customer loyalty programs. In 2017, it sent out close to 2.5 billion personalized offers, which it expects to increase significantly in 2018.
Its operations in the Northeastern U.S. had not seen "a huge impact" from Amazon.com Inc., which acquired grocer Whole Foods Market Inc. in 2017, but CFO Carr said he expected the retail giant "to be a significant player in the future."
Ahold Delhaize said it was investing to make shopping more convenient, introducing new technologies to improve the experience, such as its "click and collect" option that allows shoppers to order groceries online and collect them in-store.
The company grew its online sales 23.2% year over year in 2017. It reported €2.8 billion in online sales in 2017, including €1.2 billion in food, and said it was on track to realize nearly €5 billion by 2020. Carr said Ahold Delhaize would break out its online sales in 2018.
Net income reported for the three months ended Dec. 31, 2017, jumped to €744 million from €178 million in the year-ago period. The 2016 figure included a one-off finance cost of €243 million related to the repurchase of its ¥33 billion notes.
Diluted EPS for the quarter climbed to 59 cents, up from 14 cents a year prior and beating the S&P Capital IQ consensus estimate of 31 cents.
Net sales increased to €15.76 billion from €16.36 billion in the fourth quarter of 2016.
For the full year, Ahold Delhaize proposed a dividend of 63 cents per share, a year-over-year increase of 10.5%. The company also said it would return €2 billion to investors through a share buyback program in 2018.
As of Feb. 27, US$1 was equivalent to ¥107.45.
