Ahold Delhaize’s results under pressure – CSEE region meaningful differentiator for future growth

Ahold Delhaize closes the year 2023 with a significant drop in net income. As the retailer reports, net sales including European and U.S. operations were up 3.8% at constant exchange rates to 88.7 bn euro in the past year. This included online sales that increased by 6.1% year over year to 9.0 bn Euro. Underlying operating income fell by 1.2% at constant exchange rates to 3.6 bn Euro. This translated into a reduction of underlying operating margin from 4.3% to 4.1% on group level. Net income was down by 24.9% to 1.9 bn Euro year over year, resulting in a net income margin of 2.1% against 2.9% in the previous year. The divestiture costs of online grocery service FreshDirect and the increase of shrinkage in the U.S. as well as restructuring at Delhaize in Belgium were one-off effects that have put additional pressure on the retailer’s bottom line.

In the outlook for 2024 Ahold Delhaize targets an underlying operating margin at or above 4.0% and the ‚Save to Our Customers‘ program is expected to generate 1 bn Euro worth of cost savings, which are expected to offset cost and wage inflation and the negative impact on margins from increased online sales penetration.

Regarding revenue expectations, the retailer offered a more cautious perspective. The divestment of Fresh Direct in the United States is forecasted to reduce US sales by 600 mn USD (more than 550 mn euro) for the runnig year. At the same time the transaction is to contribute to ‚a modest uplift to margin‘ in the U.S., according to the company. In Europe Albert Heijn stopped tobacco sales from the beginning of January, which is expected to negatively impact European sales by two to three percentage points.

In an investor call, Ahold Delhaize’s CFO Jolanda Poots-Bijl underlined the role of Central and South-Eastern European (CSEE) operations as ‚a meaningful differentiator for growth‘ in the future. As an example she quoted the retailer’s Czech retail banner Albert that in 2023 delivered consecutive comparable growth for the 8th year in a row. A large impact for Ahold’s CSEE business will be the expected closure of the acquisition of local retailer Profi in Romania by Ahold’s local banner Mega Image in the second half of this year. The deal is not only expected to propel the retailer’s presence to the top 1 position in Romanian grocery retail but according to own calculations will also contribute around 2.5 bn euro net revenue to the group’s top line (see chart).

When the deal will go through Ahold Delhaize’s local retail banners in CSEE, in the Czech Republic, in Romania and in Serbia, will be among the national top 3 retailers, respectively. With an estimated average net profit of around 3.4% (as of 2022) across all three countries, the CSEE operations‘ localized proximity concepts so far have been able to deliver steady results despite the stepped-up advance of discounters in the past years. An increased footprint in Romania might furthermore increase Ahold Delhaize’s potential for higher profitability in the future.