Zacks Investment Research upgraded Etablissements Delhaize Fr (DEG), better known as Delhaize Group, to a Zacks Rank #1 (Strong Buy) on Sep 12 after the announcement of solid second quarter 2013 results and enhanced outlook for the year.
Why the Upgrade?
Delhaize Group reported solid second quarter 2013 results on Aug 8. Organic sales increased 1.9% on the back of positive comparable store sales growth of 1.1% in the U.S. and 0.8% in Belgium. Underlying operating margin also improved to 3.6% in the second quarter (3.8% in the U.S. and 4.1% in Belgium), owing to cost cutting measures.
Delhaize Group operates through food supermarkets and operates companies in 10 countries on three continents — America, Europe and Asia. These companies have been grouped into three segments for the purposes of reporting: the United States, referred to as Delhaize America, Delhaize Belgium and Southeastern Europe & Asia.
Delhaize makes about two-thirds of its revenues in the United States and has been cutting costs, expanding volumes and revamping its main Food Lion chain in the country to counter stiff competition and sluggish consumer spending.
In Belgium, sales growth in the second quarter was mainly driven by increased market share due to the successful reopening of the remodeled stores and network expansion. In Southeastern Europe, the company witnessed improvement in both revenues and earnings.
Of late, Delhaize Group has been working on simplifying the company’s U.S. operations to enable it to better focus on its core businesses in the region. In order to do so, during May, the company agreed to divest all of its U.S.-based Sweetbay, Harveys and Reid’s supermarket stores to another national supermarket chain, Bi-Lo Holdings, for $265 million in cash. The transaction, subject to some regulatory approvals, is expected to close in the fourth quarter of 2013. Further in July, DEG announced the planned divestiture and master franchise agreement of its operations in Montenegro.
The company’s cost cutting efforts and planned divestitures have yielded positive results. This has encouraged the company to nudge up its full-year operating profit outlook for 2013. Delhaize Group raised its underlying operating profit guidance from approximately Euro 775 million to at least Euro 780 million.
Estimates have mostly increased after the strong second quarter results and an upbeat outlook for the year. The Zacks Consensus Estimate increased 4.6% to $5.89 per share for 2013, while it advanced 4.5% to $5.86 per share for 2014 over the past 60 days.
Other Stocks to Consider
Besides Delhaize, other retailers worth considering are Haverty Furniture Cos. Inc. (HVT), Kirkland’s Inc. (KIRK) and Restoration Hardware Holdings (RH), all of which carry a Zacks Rank #1 (Strong Buy).