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UPDATE 2-Retailer Delhaize steps up cost-cutting campaign
August 22, 2012 / 1:50 PM / in 5 years

UPDATE 2-Retailer Delhaize steps up cost-cutting campaign

* Adjusted operating profit 184 mln euros vs 177 mln euros forecast

* 2012 cost savings seen at 550 mln euros from 500 mln previously

* Shares up 3 pct

BRUSSELS, Aug 22 (Reuters) - Belgium-based supermarket operator Delhaize benefited from store refits and tight cost controls to limit a decline in second-quarter operating profits and has increased its cost-cutting target for the year, it reported on Wednesday.

The group, which derives some 65 percent of revenue from the United States, increased it target for annual cost savings to be achieved by the end of the year to 550 million from 500 million euros, after reporting a better than expected 18 percent fall in underlying second-quarter operating profits to 184 million euros ($230 million).

Analysts had on average forecast a profit of 177 million in a Reuters poll.

The company’s shares were up 3 percent at 34.18 euros by 1330 GMT, but remaining some 20 percent below the levels seen at the start of 2012.

“There is still a lot of work to be done but there has been a string of bad news for Delhaize and there were no bad surprises today,” said Pascale Weber, analyst at KBC Securities, who upgraded her recommmendation to “buy” from “accumulate”

Delhaize said a programme to refurbish its Food Lion stores, its biggest brand in the Unites States, has improved sales at the 65 percent of the stores which have already been converted.

However, competitors had started to react.

“We will face a more aggressive competitive environment in the second half of the year,” Chief Executive Pierre Olivier Beckers told a news conference at the group’s headquarters in Brussels.

In the United States, same store sales fell 0.6 percent, not as bad as the 1.3 percent declined expected by brokers.

The operating margin there fell to 3.3 percent in the second quarter from 4.3 percent for the same period in 2011. Delhaize said it had not passed on most of the food price inflation to customers.

Competition is heating up in United States with Kroger , the largest U.S. supermarket group, and Wal-Mart , the world’s largest retailer, keeping prices low.

In July, Supervalu, the third-largest U.S. supermarket chain, suspended its dividend to fund aggressive price cuts aimed at winning back shoppers, while Safeway said increased spending on advertising ate into profits.

In Belgium, Delhaize’s same store sales increased 1.1 pct ahead of expectations of a 0.85 percent fall.

Operating margins there decreased to 3.8 percent from 4.8 percent last year, as Delhaize offered lower prices to its customers and paid higher wages to its staff because of Belgium’s automatic salary adjustment for inflation.

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