Dutch retailer Ahold said today (28 August) that investments in pricing and promotions helped it maintain sales during the first half but had a negative impact on the group’s margins.
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Ahold’s first-half net sales dipped 1.1% to EUR13.3bn (US$19.6bn). However, stripping out the impact of currency conversion and the weak dollar sales would have grown by 7%, the company revealed.
“We continued to invest in price and gave increased focus to promotions, both of which helped to drive sales and win customers but, as anticipated, impacted margins,” Ahold CEO John Rishton said.
The company reported retail operating margin of 4.6% compared to 4.9% for the comparable period of last year. Retail operating income was EUR617m and operating income totalled EUR571m, down EUR16m from last year.
Net income plummeted from EUR1.9bn posted in the first half of last year, when Ahold divested its US Foodservice business, to EUR599m.
In Europe, Ahold said that food price inflation was only partially passed on to consumers while price promotions, including discounts during the Euro 2008 Football Championships, also hit margins.
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By GlobalDataIn the US, where Ahold generates around 70% of sales, the company has embarked on a transformational “Value Improvement Program” including value repositioning, marketing and branding.
Rishton said that despite these investments the company still expects to meet its full-year margins guidance.
“We are confident we will manage the balance between sales growth and margin and deliver our underlying retail operating margin guidance for 2008 of 4.8-5.3%,” he said.
Concern over currency conversion and margins dampened Ahold’s share price, which dipped 4.26% at time of press to EUR8.32.
