Local brands’ value proposition buoy Ahold Delhaize’s Q3 sales, earnings
Buoyed by its local brands value proposition that resonated well with customers, Ahold Delhaize reported a strong increase in Q3 sales and earnings.
"Empowering customer choice by providing great value and easy access to affordable and healthy food options is at the center of the customer value proposition in all of our 19 great local brands,” said Frans Muller, president and CEO of Ahold Delhaize. “Our positive market share development and resilient financial performance in Q3 highlights the trust customers continue to place in our brands. I am proud of these results and of our associates who consistently rise to meet the demands of these challenging times.”
Comparable store sales excluding gas increased 7.9% in Q3, with an acceleration in growth rates in both the United States and Europe to 8.2% and 7.4%, respectively. "The vast majority of our leading local brands continue to gain or maintain market share. Notably, during the quarter, our two biggest brands achieved significant milestones," the company said.
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Group net sales were €22.4 billion, an increase of 9.1% at constant exchange rates, and up 20.8% at actual exchange rates. Group net sales were driven by positive contributions from comparable sales growth excluding gasoline of 7.9%, foreign currency translation benefits, and higher gasoline sales. Q3 Group comparable sales benefited by approximately 0.2 percentage points from the net impact of calendar shifts and weather.
In Q3, group net consumer online sales increased by 11.5% at constant exchange rates, led by a robust performance in the U.S. and a return to growth in Europe, where the difficult year-over-year comparisons that pressured first half results eased. Net consumer online sales in grocery increased 16.9% at constant exchange rates.
In Q3, group underlying operating margin was 4.4%, consistent with Q3 2021 at constant exchange rates, reflecting strong cost savings and favorable insurance results, which helped offset higher labor, distribution and energy costs. In Q3, Group IFRS-reported operating income was €887 million, representing an IFRS-reported operating margin of 4%.
Underlying income from continuing operations was €696 million, up 27.3% in the quarter at actual rates. Ahold Delhaize's IFRS-reported net income in the quarter was €589 million. Diluted EPS was €0.59 and diluted underlying EPS was €0.70, up 31.6% at actual currency rates compared to last year's results and 18.2% at constant currency rates. In the quarter, 7.1 million own shares were purchased for €188 million, bringing the total year-to-date amount to €711 million through the first nine months.
U.S. net sales were €14.7 billion, an increase of 8.8% at constant exchange rates and up 27.4% at actual exchange rates. U.S. comparable sales excluding gasoline increased by 8.2%, benefiting by approximately 0.4 percentage points from the net impact of weather and calendar shifts. Food Lion continued to lead brand performance, celebrating 40 consecutive quarters of positive sales growth, the company noted.
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In Q3, online sales in the segment were up 20.8% in constant currency. This builds on top of 52.9% constant currency growth in the same quarter last year.
Underlying operating margin in the United States was 5%, up 0.2 percentage points at constant exchange rates from the prior year period. Q3 U.S. underlying operating margins benefited by 0.3 percentage points from a favorable reserve release impacted by various safety programs. In Q3, U.S. IFRS-reported operating margin was 3.9%, mainly impacted by an impairment charge in the amount of €187 million for FreshDirect, the company said.
European net sales were €7.7 billion, an increase of 9.6% at constant exchange rates and 10.0% at actual exchange rates. These sales also benefitted slightly from the 2021 acquisition of 38 stores from DEEN in the Netherlands, which was lapped late in Q3. Europe's comparable sales excluding gasoline increased by 7.4%, as shelf inflation accelerated in the quarter, and year-over-year comparisons eased versus a difficult first half of the year. Q3 Europe comparable sales were negatively impacted by approximately 0.1 percentage points from calendar shifts.
In Q3, net consumer online sales in the segment increased by 6.1%, following 20.1% growth in the same period last year. Net consumer online growth was driven in large part by strong grocery sales, where Ahold Delhaize's robust online solutions continue to serve consumers well. While non-food e-commerce market conditions in the Benelux remained soft, bol.com continued to gain market share, enabling it to generate positive net consumer online sales growth of 5.6% in the quarter, a sequential improvement versus the prior quarter. Bol.com's net consumer online sales from its more than 50,000 third-party sellers grew at 11% in Q3 and represented 59% of sales.
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Underlying operating margin in Europe was 3.4%, down 0.9 percentage points from the prior year due to volume deleveraging and escalating energy and other cost pressures. Europe's Q3 IFRS-reported operating margin was 4.1%, positively impacted by the release of a wage tax provision in the amount of €62 million, the company said.
"Despite challenging macro-economic operating conditions, our Q3 results provide us with the ability to again increase our full year EPS outlook. We now forecast low-double-digit 2022 diluted underlying EPS growth, versus the prior guidance of growth at a mid-single-digit range," Ahold Delhaize said.
Ahold Delhaize's 2022 group underlying operating margin is expected to be at least 4%, in line with the company's historical profile. Management said that it believes that the company's brands continue to offer consumers a strong shopping proposition and are well-positioned to maintain profitability in the current inflationary environment. Ahold Delhaize's Save for Our Customers initiative is on track to deliver more than €850 million in savings in 2022, which is helping to offset cost pressures related to inflation and supply chain issues, along with the negative impact to margins from increased online sales penetration.
The 2022 free cash flow outlook remains at approximately €2 billion, with net capital expenditures expected to total approximately €2.5 billion.
"As labor and raw material costs remain high, we reiterate our commitment to exercise discipline in executing and phasing the timing of investments, in order to ensure hurdle rates and return on capital metrics are achieved," the company said.
In addition, Ahold Delhaize remains committed to its dividend policy and share buyback program, as previously stated. "We are on track to increase our full-year dividend within our 40%-50% payout range, in line with our policy, and we are executing our €1 billion share repurchase program in 2022 as planned. Ahold Delhaize also announces a new €1 billion share buyback program to start at the beginning of 2023," the company said.