Dutch retail giant Ahold has cut the forecasts for its retail operations in 2006, reporting lower-than-expected results for the fourth quarter and for fiscal 2005.
Net profit fell by 82% for 2005 to EUR159m (US$190m), while net sales for the full year remained more or less stable at EUR44.50bn against EUR44.61bn in 2004.
For the fourth quarter, Ahold posted an 85% fall in net profit to EUR113m compared with EUR758m in 2004. The lower-than-expected results were attributed to tough competition and higher costs and Ahold said it would be reviewing under-performing operations.
Operating profit for the quarter reached EUR292m, including EUR92m in insurance proceeds, against EUR257m in the corresponding quarter last year. Sales in the fourth quarter rose by just 0.3% to EUR10.83bn.
“2005 has been a difficult year with mixed performance in our key business areas,” said Ahold’s president and CEO Anders Moberg. “We continue to experience strong competitive pressures in our retail operations, with considerable challenges at the Stop & Shop/Giant-Landover Arena. Tops (in particular in northeast Ohio) and the Central Europe Arena continue to underperform.
“On the other hand, our repositioning programmes at Albert Heijn and ICA have resulted in strong market leadership and growth, and we launched our long-term strategy to drive the profitable growth of US Foodservice. In addition, we achieved a number of important strategic milestones, most importantly the preliminary court approval of our settlement of the securities class action and the conclusion of our EUR3.1bn divestment programme, enabling us now to focus fully on managing our businesses for the future.”
Momberg added that financial targets originally set for retail in 2003 had become “increasingly challenging”. The company has reduced its retail net sales growth forecast for 2006 to between 2.5% and 3.0% (at constant exchange rates, and excluding divestments made in 2005). In addition, it expects retail operating margins will be between 4.0% and 4.5% in 2006. It had previously forecast an operating margin of 5% for this year. However, Ahold added that its US Foodservice targets remain unchanged.