Delhaize Group (DEG) Q2 2010 Earnings Call August 13, 2010 2:00 a.m. ET Executives Geert Verellen - VP, IR & External Communications, Delhaize Group Pierre-Olivier Beckers - CEO, Delhaize Group Stefan Descheemaeker - CFO, Delhaize Group Ron Hodge, CEO, Delhaize America Operations Michel Eeckhout - CEO, Delhaize Belgium Analysts Fernand de Boer - Petercam Paul Hofman - CA Cheuvreux Edouard Aubin - Morgan Stanley James Anstead - Barclays Capital Andrew Gwynn - Bank of America Frederic van Daele - Kempen & Co Alastair Johnston - Citigroup Andrew Kasoulis - Credit Suisse James Collins - Deutsche Bank Presentation Geert Verellen
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During this call we will first look back on our performance in the second quarter of 2010, followed by comments on operations and strategy. Afterwards, we will take questions. For those unable to stay on the call, or who wish to listen to it again, a replay will be available on the company’s website.I now turn to Pierre-Olivier Beckers for an introduction of our second quarter results. Pierre-Olivier Beckers Thank you, Geert. Good afternoon and good morning everyone. Thank you for joining our conference call today. During our second quarter, our group has been able to maintain stable revenues at identical exchange rates despite the significant impact of low inflation, caused in part by our own price investments, and the continued difficult economic environment. Our Food Lion operations suffered from the very difficult economic and competitive environment in the Southeast of the U.S., while our Hannaford operation in the Northeast was holding well against the competition. Our Belgian operations performed outstandingly with great sales momentum and the highest comparable store sales growth of the last seven years. Delhaize Belgium’s market share increase was the highest of all retailers in the country. In Greece, Alfa Beta continues to perform solid revenue growth, mostly driven by real volume growth and again Alfa Beta increased its market share, thereby showing its resilience in an increasingly difficult economic environment. This being said, we are disappointed with our sales results in the Southeast of the U.S. in the second quarter. Even though, and it is important, we had expected that the second quarter would be the most difficult of the year in terms of comparison, the deflationary effect of our fundamental change in price strategy since the beginning of 2010 was amplified by the un-abating pressure on the consumer and the fact that the gradual increases in inflation we expected as from the second quarter did not materialize. In addition, the macroeconomic environment has lead in the Southeast to a continued promotional aggressiveness in the market place.
Aside from this current reality, we are confident that we are moving along well on our path to implement our new game plan. Testimony to that is the fact that we are able to raise our gross annual savings target from EUR300 million to EUR500 million by the end of 2012, thanks to the identification of EUR200 million of new savings in cost of sales, and I will come back to this later.As a result of our firm commitment to our new strategy of lower prices, the continued pressure on the U.S. consumer, the aggressive competitive environment, and the expectation we have of a significantly lower than expected retail inflation, especially in the Southeast of the U.S. for the remainder of the year, we have decided to adjust our full year operating profit growth expectations to minus 2% to plus 2% instead of the guidance we had previously, 2% to 5%. Stéfan will now provide you with additional color on the second quarter results, and I will come back later to give you a brief update on some current strategic initiatives. Stéfan? Stéfan Descheemaeker Thank you, Pierre-Olivier, and welcome everyone. As usual, I will review our figures at identical exchange rates unless otherwise stated. In this quarter, the U.S. dollar has strengthened on average by 7.3% against the euro, compared to the second quarter of last year. In this quarter, Delhaize Group kept its revenues stable, despite the persistence of the challenging economic environment and low retail inflation, sometimes deflation, at our operations. In the U.S., our revenues decreased by 2.8% and our comparable store sales growth was negative 3.6%. Structural pricing investments made since the beginning of the year at Food Lion and continued low cost inflation have resulted in a retail inflation of zero for the U.S. for this quarter, creating a tougher comparison with last year’s inflation of 1.5% in the second quarter. Read the rest of this transcript for free on seekingalpha.com