Delhaize will release its 4Q11 sales figures on Thursday 12 January at 8:00am CET. No conference call has been planned. The 4Q11 results will be published on 8 March. Management indicated at the beginning of November that business conditions became toughertowards the end of 3Q11 as it became increasingly difficult to pass on higher cost inflation. Moreover, the US operations saw a deterioration of volume trends towards the end of 3Q11. We believe this trend has continued throughout 4Q11 as consumer confidence remained fragile.
Group sales and capex
We see group sales rising by 3.6% at identical exchange rates and excluding Delta Maxi. Reported group sales are expected to increase by 9.3% to € 5,732m in 4Q11. The press release should also include a capex guidance for 2012. Management indicated alreadythat capex should reach 4% of sales over the coming three years. We forecast € 900m for 2012 at identical exchange rates compared to € 820-840m in 2011.
USA
In the US, comparable store sales growth should accelerate slightly from 1.9% in 3Q11 to 2.0% in 4Q11 as volume declines are more than offset by price increases. Official food inflation hovered around 5-6% but Delhaize America’s in-store inflation is lowerdue to price investments. Note that in 3Q11, sales were dampened by temporary store closures due to hurricane Irene. We see Delhaize America’s sales rising by 3.3% to $ 4,874m in 4Q11.
Belgium
Discounters are gaining market share in Belgium as consumers trade down. Moreover, Delhaize Belgium faces tough comparables in 4Q11 because comparable store sales were up 3.8% in 4Q10. We have pencilled in flat comparable store sales and 0.4% reported sales growth for 4Q11. Given the above we arrive at sales of € 1,265m.
Other
Sales in South Eastern Europe and Indonesia are expected to rise by 69.3% to € 868m in 4Q11 of which € 300m from Delta Maxi. Alfa Beta continues to gain market share as local rivals struggle with liquidity issues. Delhaize’s Greek subsidiary has recently acquired 13 stores from competitors. The Greek banner also benefits from its competitive price image. In 3Q11, Alfa-Beta’s private label and “365” value brand realized 32% sales growth.
Conclusion
The stock is very cheap, but the group’s two leading banners are still facing challenges. Delhaize Belgium lost market share (-67bps) in the first 9 months of the year compared to the same period last year and Food Lion’s volumes were still down in 3Q11. We believe however that the valuation discount versus peers will narrow if the re-launch of Food Lion proves successful. The performance of the 200 Food Lion stores that were re-launched early May is promising. A successful integration and expansion of Delta Maxi should also help to underpin the share price over the coming year.