Ahold’s group sales came out 1% below consensus. Revenues in the US, the Netherlands and Central Europe came out respectively 0.3%, 1.8% and 3.6% below expectations. The underlying operating margin (before impairments, restructuring and disposal gains and losses) fell from 4.7% in 1Q11 to 4.3% in 1Q12. The underlying margin was flat in the Netherlands (6.0%) but the US margin declined more than expected (-50bp). Management noted that 1Q12 sales were partly impacted by the timing of Easter and challenging market conditions. continued to invest in competitivenessboth in the US and in Europe with higher levels of promotional activity, resulting in market share gains in the US and stable share in the Netherlands. They saw underlying trends improving slightly as the quarter developed and are encouraged by the sales trend in 2Q12, albeit against a background of weak market conditions. We’ll revise our forecasts to reflect the stronger $ (our old forecast is based on 1.33 $ /€ ) and the weaker than expected 1Q12 margin in the US. We maintain our Accumulate rating because we are comforted by the signs of improving trends in 2Q12. Moreover, the stock is trading at attractive valuation multiples.
Group:
Net profits from continuing operations declined by 5% to € 284m (KBCS € 311m and CSS € 301m) on the back of 5% sales growth (KBCS 6.8%, CSS 6.1%), a 40bp drop underlying operating margin (KBCS and CSS 20bp drop), € 3m one-off gains (including impact of insurance activities on Corporate Center costs), a € 1m rise in net financial charges, a tax rate of 27% (KBCS and CSS 25%) and a € 13m rise (KBCS € 11m rise, CSS € 6m rise) in the contribution from JMR and ICA. At identical exchange rates, sales were up 1.9% (KBCS +3.5%).
US (61% of total sales):
Identical store sales growth (excluding fuel) decelerated from 3.2% in 1Q11 to 0.1% in 1Q12 (KBCS 1.5%, CSS 1.0%). Reported sales rose by 2.8% to $ 7,803m (KBCS $ 7,896m, CSS $ 7,820m).
The underlying operating margin (before impairments, restructuring and disposal gains and losses) fell from 4.6% in 1Q11 to 4.1% in 1Q12 (KBCS and CSS 4.3%).
Netherlands (34% of total sales):
Identical store sales growth decelerated from 2.8% in 1Q11 to 0.2% in 1Q12 (KBCS 2.0%, CSS 1.5%). Reported sales rose by 1.2% to € 3,262m (KBCS € 3,345m, CSS € 3,322m).
The underlying operating margin remained flat at 6.0% (in line with KBCS and CSS.
Central Europe (5% of total sales):
Identical store sales (excluding fuel) dropped by 4.6% in 1Q12 (KBCS -2.0%, CSS -1.6%). Reported sales fell by 5.6% to € 508m (KBCS € 519m, CSS € 527m).
The underlying operating margin contracted from 1.1% in 1Q11 to 0.8%in 1Q12 (KBCS 1.0% and CSS 0.9%).