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AMSTERDAM -- The Road to Recovery is throwing some definite hazards in the way of international grocer Ahold. The Dutch company, based here, has had to cut its financial performance forecasts for retail operations in 2006, bemoaning brutal competition and steep operating costs in a press conference held here early today.
The company, which has a large U.S. division, also said it would review underperforming assets, as speculation has begun to rise in Europe that it should or shall be broken up. The retailer has for several years been trying to right its operations through a wide-ranging strategy it has dubbed the Road to Recovery.
"We continue to experience strong competitive pressures in our retail operations, with considerable challenges at the Stop & ShopGiant Landover arena," said c.e.o Anders Moberg said in a statement. He added that Tops, particularly in Northeast Ohio, continues to struggle. In response, Ahold will establish a new "value improvement program" for the Stop & Shop and Giant-Landover operations, and next week will name a new U.S. c.e.o. whose mission will be to fix the division.
Ahold logged fourth-quarter operating profits of 292 million euros, or $351 million, which it said included 92 million euros of insurance proceeds. Reporting on the results this morning, Reuters said analysts had forecast earnings before interest and tax of 265 million euros. Sales in the fourth quarter rose to 10.83 billion euros after strong holiday business at its U.S. Stop & Shop stores and in its Dutch home market.
"The financial targets we originally set for retail in 2003 have become increasingly challenging," admitted Moberg. "Competitive and operating cost pressures have been greater than expected."
Ahold also said it is now anticipating retail operating margins of 4 to 4.5 percent for 2006, and it forecast net retail sales growth of 2.5 to 3 percent. "The turnaround at certain businesses has been slower than planned," Moberg said. "Driving top line growth and achieving a 5 percent retail operating margin remain our overall priorities."
That fall short of earlier predictions of operating margin of 5 percent, annual net retail sales growth of 5 percent, and a 14 percent return on assets by 2006 for the retail operations.
For the quarter, sales at both the Stop & ShopGiant Landover operations and Giant CarlisleTops segment were down, by 5.5 percent and 15.1 percent, respectively. For the year, the former's sales were up 1.5 percent, while the latter's were down 4.3 percent.
At a news conference, Moberg fielded questions about whether or not the huge retailer has been approached by prospective buyers. He replied, "We are always looking into what makes most sense for our sharholders." The company's c.f.o. was quoted by Reuters as saying that Ahold is more valuable if it is not broken up. "We believe that holding the company together there will be more synergies and value for shareholders," Rishton said.