Ahold Delhaize is the latest major player in grocery to announce strong Q2 earnings as a result of COVID-19. The Netherlands-based food retail group, the U.S. banners of which include Stop & Shop, Giant Food, Food Lion and Hannaford, reports net sales were up about $22.7 billion (19.1 billion euros), an increase of 17.1%, or 15.9% at constant exchange rates.
Comp sales growth (excluding gas) was particularly strong in the U.S., up 20.6%. In Europe, comp sales growth (excluding gas) was up 10.2%.
“The engagement and strong execution of our teams have translated this unprecedented demand in both the U.S. and Europe, due to COVID-19, into outstanding results,” said Frans Muller, president and CEO of Ahold Delhaize, in a press release. “These developments, along with the benefit of comparing against the same quarter last year, when we saw a negative impact from the strike at the Stop & Shop brand in the U.S., have led to strong underlying operating margin performance in the quarter.”
Of course, soaring consumer demand and enhanced earnings have come at a time when grocers around the globe are simultaneously navigating the largest worldwide crisis in history.
“COVID-19 has presented adversity across society and business. It has impacted our communities, associates, customers and their families,” said Muller, who went on to thank the company’s associates across all brands and support offices for their outstanding service during the pandemic. “Their agility and dedication have ensured the safety of our stores and distribution centers, sustained the strength of our supply chains, and helped nourish families and local communities.”
Ahold has made significant investments in additional safety measures, enhanced associate pay and benefits, and charitable donations, including to several local food banks, as a result of COVID-19. It estimates its virus-related costs were approximately $392 million (330 million euros) in the first half of the year, and about $309 million (260 million euros) in Q2, including safety measures and enhanced associate pay. Additionally, its brands hired more than 45,000 associates globally in Q2.
“Our Q2 performance illustrates the challenge all companies are facing in predicting results in the highly uncertain environment created by COVID-19,” said Muller.
An important aspect of that evolving environment is the widespread surge in demand for online ordering, delivery and curbside pickup. Ahold Delhaize reports that net consumer online sales grew 77.6% at constant exchange rates.
“Despite the high levels of market uncertainty, we are accelerating investments to support our increasing digital and omnichannel ambitions and raising our 2020 outlook due to our strong performance in the first half of the year,” said Muller. Ahold expects to reach its $8.3 billion (7 billion euros) net consumer online sales goal in 2020, one year ahead of plan.
The increased demand for Ahold’s online offerings, combined with investments to increase capacity, has resulted in net consumer online sales growth of 127% in the U.S., at constant exchange rates, and 64% in Europe, reports Muller, adding, “Increased investments in digital and omnichannel capabilities should lead to continued wallet share gains. As a result, we now expect over 55% growth in global net consumer online sales in 2020.”
Due in part to these investments, Ahold anticipates that its group underlying operating margin will be higher than in 2019, with underlying earnings per share growth in the low- to mid-20% range. It is also raising its free cash flow target to at least $2 billion (1.7 billion euros), net of paying the majority of the recently announced tentative U.S. pension plan withdrawal agreement.