Ahold faces stiff competition in the Netherlands

Ahold faces stiff competition in the Netherlands

Ahold's shares rose yesterday after the retail giant's fourth-quarter margins beat market forecasts. However, some analysts believe the Dutch grocer faces challenges at home and in its biggest overseas market, the US.

Kepler Cheuvreux analyst Fabienne Caron

"In the US, the EBIT margin reached 4%, as expected representing a 30 basis point decline. Given the slowdown in inflation and the lack of volume growth, Ahold has continued to cut costs. We expect them to continue to do so in 2014. 

"The company sees the macro situation improving, but nothing has happened at the store level yet - the same situation as Tesco. In the US, they will continue to focus on costs savings. Ahold needs to convince the market that they have enough savings to protect margins.

"While in the Netherlands, they are sharpening their price policy and tailor-made offer. They have already relaunched their loyalty card."

KBC Securities senior equity analyst Pascale Weber

"REBIT came out slightly ahead of expectations but we are still concerned by market share pressure in the US and the Netherlands and negative identical-store sales growth.

"CEO Dick Boer remains very cautious about 2014. He pointed out that there is always a delay between the economic recovery and the uplift in the food retail sector. Trading conditions remain tough both in the US and the Netherlands. Management is confident however that margins should remain relatively stable thanks to cost savings.

"It will take time to improve the sales momentum at Albert Heijn in the Netherlands. In the fourth quarter, sales were down about 2-3% at the group's main banner. Harsh winter conditions in the US should have a slightly positive impact on sales as consumers are reluctant to go out to eat. However competition remains fierce in the US especially in the North East."

Petercam analyst Fernand de Boer

"Given the 4Q13 poor sales figures reported in January, the 4Q13 results can be regarded as solid on the operational line, partly thanks to Ahold's cost saving efforts. All three regions exceeded our expectations, with the biggest beat coming from Czech Republic.

"Cash flow generation remains impressive, which enables Ahold to please its shareholders by share buy-back or raising the pay-out ratio. Considering the solid financial ratios (2013 lease adjusted net debt/EBITDAR 0.9x) and our projections for 2014, we do not exclude a new share buy-back in 2015

Sanford Bernstein analyst Bruno Monteyne

"Ahold's results today were stronger than expected, with underlying operating income 7% ahead of consensus. We are encouraged that Ahold has grown FY market share in the USA, and therefore as forecast food inflation and positive consumer sentiment returns to the US market we expect Ahold will once again be able to grow sales Identical sales decreased 1% Although this sales decline is disappointing, it points to a poor Netherlands economy. Albert Heijn's market share increased further during 2013

"Ahold's biggest problem remains what to do with all of its cash (it is already returning EUR3bn to shareholders through the share buyback and reverse stock split). Today, we have found out part of the answer, they reported an unexpected increase in dividend of 7%.

"Management has a track record of taking time to consider what to do with spare cash. This cautiousness is a quality we like in management, not rushing into empire building acquisitions, waiting for the right opportunities to arise; and similarly not returning cash straight away to shareholders if growth opportunities are available. We expect Ahold to continue to look for profitable growth opportunities in the US and possible other 'neighbouring/adjacent territories' with anything remaining available for shareholders and debt reduction."