Dutch retail giant Ahold this morning (20 January) reported a “strong sales performance” in all of its markets in 2010. Here is a selection of the key quotes from industry watchers.
Christopher Hogbin, Jamie Merriman & Jonathan Alvis of Bernstein Research
“The trading update showed a resilient performance across Ahold’s geographies, which in our view, reflects Ahold’s strong market position, competitor weakness and a sequential pick-up in food inflation. In every region, identical-store sales growth in Q4 was higher than the first nine months – highlighting a promising exit rate to the year.
“We are encouraged by Ahold’s continuing ability to balance growth and profitability against tough market conditions. However, the primary reason to own the stock, in our view, is the potential for Ahold to use the strength of its balance sheet to accelerate earnings growth either through acquisitions and/or further cash returns to shareholders – which are largely not yet incorporated in earnings forecasts.
“With the US macroeconomic outlook improving and food inflation set to return, we believe the window of opportunity will likely start to close in 2011. As such we expect the company to act either by making acquisitions early in the year or returning cash. We already model a renewal of Ahold’s EUR500m buyback program from full-year results in March, but anticipate in the absence of acquisitions, significantly more could be returned to shareholders.”
Richard Withagen of SNS Securities
“I think over here in the Netherlands they were performing a little better than expected, but in the US, EBITDA was more or less in line with expectations. If you compare it with the competition, it is actually better than what many competitors are doing so, as in previous quarters, Ahold managed to gain market share both in the US and the Netherlands. It’s a good, solid performance.
“It’s not going to be easy because what’s for sure is input costs are going up, whereas on the sales side it’s not going to be easy to get prices to higher levels because you don’t want to lose your customers. It’s going to be quite a challenging year, especially in the US where promotions and price aggressiveness is probably going to be a bit higher than in the Netherlands. So in terms of margin performance, I actually do not believe that Ahold will be able to increase its margins in 2011 because of this challenging market situation. That shouldn’t be a big issue because the company is delivering on its top-line performance, which is a key focus for them. They are doing very well already, but if you are talking about market share gains, I think that will continue into 2011.
“I don’t think they’re going to make any multi-billion euro acquisitions, I don’t think that will happen. What I do hope happens is, with the new management team, the company will focus more on growth – organic growth and the opening of more stores. They have already, for example, said in the Netherlands that they will convert more stores than last year.
Fernand de Boer of Petercam Institutional Research
“At home, with 4% identical-store sales growth, they are clearly continuing their good performance, although the market in the Netherlands could have been better in the fourth quarter, partly due to the weather conditions. Maybe the gains in the quarter were a little bit less than we are used to but on the other hand their comparable sales are also high, so with 4% they continue with a very strong quarter. It was a solid performance.
“In the Netherlands [in 2011] we will see a little bit of lower sales growth than in 2010, in terms of competition. One of its main competitors Jumbo – which acquired Super de Boer – will try to gain some share. You will see that C1000 is also remodelling all of its stores. On the other hand we might see some more food inflation coming in than we did in 2010, but all-in-all for the Netherlands we will see a little bit more moderate sales growth.
“In the US, on one hand I think that with market pressures we are likely to see it get more promotional in the first-half of 2011. We can expect moderate growth in 2011 on a like-for-like basis. On the other hand, in 2010 their earnings were significantly depressed by the acquisition of Ukrops, which was loss-making. It will be quite an improvement in 2011, so if you add that all up we can expect some growth in 2011, but we will see.”
Philip Gorham, senior equity analyst for Morningstar
“Ahold slightly undershot our revenue forecast in the fourth quarter, but robust same-store sales figures give us confidence in our 2011 projections and suggest our thesis – that Ahold’s shrewd capital allocation should allow it to outperform its peers in the near term – remains intact. We are reiterating our fair value estimate, which implies limited upside to the stock.
“Customers around the globe are still focusing on value, and this is particularly true in the US, where consumers have historically been sensitive to price promotions. This is likely to continue in the near term, and we think rising gas prices will put further pressure on consumers in the first half of 2011. Nevertheless, Ahold posted stronger sales growth than many of its peers; for example, Supervalu Inc recently reported a 4.9% decline in same-store sales because of lower traffic. We think Ahold’s investments in its stores, move to an everyday low price strategy, and focus on private-label brands are the key drivers of its outperformance.
“In Europe, we expect Ahold’s presence in the Netherlands and Eastern Europe will help the firm avoid much of the carnage being caused by painful austerity measures. The Netherlands’ recovery appears to be broad-based, leading to a steady, if not spectacular, rebound from the recession. The European Commission forecasts around 1.5% and 3.0% real GDP growth for the Netherlands and Slovakia, respectively, in 2011; if these numbers come to fruition, Ahold should benefit from growing ticket values, while traffic should be supported by the continued relevance of private label.”