Royal Ahold sales down 4.8% in second quarter

Giant Food parent blames euro gains for cutting into revenue in United States

July 30, 2004|By BLOOMBERG NEWS

ZAANDAM, Netherlands - Royal Ahold NV, the Dutch food retailer that overstated profit for three years, said yesterday that its second-quarter sales fell 4.8 percent as the euro's gains eroded its U.S. revenue.

Revenue dropped to 12.3 billion euros ($14.8 billion) from 13 billion euros a year earlier, the supermarket operator said. Analysts had forecast sales of 12.1 billion euros.

Ahold, the owner of U.S. grocery chains including Landover-based Giant Food Inc., aims to sell assets worth 2.5 billion euros by next year in a bid to regain its investment-grade credit rating. The company has shed its Brazilian Bompreco supermarkets, its U.S. Golden Gallon convenience stores and its Thai business. Ahold also plans to sell the U.S. Bi-Lo and Bruno's chains and its Spanish unit.

"These are good results," said Lukas Daalder, an analyst at Oyens & Van Eeghen in Amsterdam.

Ahold's shares rose 30 cents, or 5.2 percent, to 6.05 euros yesterday.

On average, the euro was 6.1 percent higher against the U.S. currency in the second quarter than a year earlier, reducing the value of dollar sales when converted to euros. Ahold gets more than two-thirds of its revenue from the United States, where it also owns the Stop & Shop supermarket chain. Excluding the effects of currencies, the company's sales rose 3.1 percent, Ahold said.

U.S. retail sales rose 0.5 percent in local currency as food-price inflation remained stable. Sales at Stop & Shop rose 3.3 percent to $2.4 billion, and Giant's rose 1 percent to $1.2 billion.

The company's U.S. Foodservice food distribution unit, where most of the profit overstatement occurred, is ending less-profitable contracts with customers such as Compass Group PLC as it tries to restore earnings growth. Sales rose 7.5 percent, in the local currency, to $4.4 billion as the unit raised prices and improved volumes.

Sales at Ahold's Dutch Albert Heijn unit rose 1.5 percent to 1.3 billion euros. Albert Heijn, the country's biggest grocery chain, initiated price reductions last year to win back market share, causing competitors to follow suit. The company's Spanish sales fell as a result of a lower store count, declining tourism on the Canary Islands and increased competition. Sales growth in Central Europe was offset by lower currency exchange rates, Ahold said.

In February last year, Ahold disclosed that it had inflated earnings by 970 million euros over three years. The disclosure prompted an investigation in which U.S. prosecutors charged three former U.S. Foodservice executives Tuesday with inflating earnings.

The charges were the first to be made after a yearlong probe of how Columbia, Md.-based U.S. Foodservice accounted for promotional allowances - money that food makers paid to the Ahold unit for promotions and prime shelf space.

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