Etablissements Delhaize Frères et Cie "Le Lion" (Groupe Delhaize) Société Anonyme's (DEG) CEO Frans W. H. Muller on Q1 2014 Results - Earnings Call Transcript

May. 7.14 | About: Delhaize Group (DEG)

Etablissements Delhaize Frères et Cie "Le Lion" (Groupe Delhaize) Société Anonyme (NYSE:DEG)

Q1 2014 Earnings Call

May 07, 2014 3:00 am ET

Executives

Frederic van Daele -

Frans W. H. Muller - Chief Executive Officer and President

Pierre Bruno Charles Bouchut - Chief Financial Officer and Executive Vice President

Analysts

Fabienne Caron - Kepler Capital Markets, Research Division

Andrew Gwynn - Exane BNP Paribas, Research Division

Patrick Roquas - Rabobank Equity Research

James Grzinic - Jefferies LLC, Research Division

Sreedhar Mahamkali - Macquarie Research

Jerome Samuel - HSBC, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Delhaize Group First Quarter 2014 Earnings Call. Today's call is being recorded. At this time, I would like to turn the call over to Frederic van Daele, VP of Investor Relations. Please go ahead.

Frederic van Daele

Thank you, Operator, and good morning, everyone. Welcome to Delhaize Group's conference call regarding our first quarter 2014 results. Today's presentation and discussion will include forward-looking statements. We want to caution you that such statements are predictions, and that actual events or results can differ materially. Factors that may have a material effect on our business are detailed in the cautionary note in our earnings release and are contained in our SEC filings. The statements are made as of the date of this presentation and Delhaize Group assumes no obligation to update this information.

Today, we have the following people with us: Frans Muller, CEO of Delhaize Group; and Pierre Bouchut, CFO of Delhaize Group. During this call, we will look back on our performance in the first quarter and we'll use the presentation available on the website and the one sent to you this morning. Afterwards, we will take questions. For those unable to stay on the call or wish to listen to the call again, a replay will be available on the website, as well. Frans, the floor is now yours.

Frans W. H. Muller

Thank you, Frederic, and good morning, everyone. Slide 3 of the presentation summarizes our priorities as set out a couple of months ago at the occasion of our full year results. Our 4 key priorities and actions are as follows: firstly, we are putting the customer back at the center. And our second priority is to be focused on our core markets. The markets we already earmarked as core are Food Lion, Hannaford, Belgium, Greece and Serbia. We define core markets as markets where we have a relative high market share and where the overall markets are attractive from a size and growth perspective. Bulgaria and Bosnia, which we have recently divested, did not fit this definition. We have to realize more operating efficiencies and here, I'm referring mainly to SG&A, where Delhaize Group is not yet doing a good job in reversing the increasing trends we have seen in our SG&A over the past several years. And lastly, acting with speed is our fourth priority.

Page #4 summarizes the key elements of the first quarter. I first want to highlight that when looking at the latest available data, market share has been stable or increasing in all of our operating companies with the exception of Belgium. In the U.S., the first quarter marked the sixth consecutive quarter of positive real growth with Food Lion and Hannaford both being positive. Food Lion is clearly showing continued momentum following the completion of the phase repositioning and in addition, the severe winter weather has boosted our sales, and Food Lion's proximity network has played an important role in that regard.

As expected, price investments in both banners, commodity cost increases and the costs related to winter storms have impacted our profitability. In Belgium, the environment has stayed very competitive and the hard discounters have benefited from their strong price image. Our own customer satisfaction continues to evolve favorably but the lower retail inflation, a tough comparison base with a strong first quarter of last year, negative volume and temporary important remodeling works at some of our stores have led to a weak sales performance. As discussed in March, profitability has been impacted by a combination of price investments, promotions and higher SG&A expenses.

In Southeast Europe, in a still challenging overall trading background, Alfa Beta in Greece and Mega Image in Romania continued to perform well. Serbia's revenue and profitability decrease is impacting the overall segment performance. Pierre will now review with you our first quarter results.

Pierre Bruno Charles Bouchut

Thank you, Frans, and good morning to everyone. Let's review our Q1 2013 financial results. Slide 5 provides you with our summary Q1 income statement. At EUR 5.1 billion, our sales increased by 0.3% at actual FX rates and by 2.8% at identical exchange rates. Organic growth for the quarter stood at a satisfactory 2.8%. Our gross margin stands at 24% and decreased by 58 basis points compared to last year at identical exchange rates. This is explained by a 60-basis-point gross margin decrease at Delhaize America, primarily driven by price investments, both at Food Lion and Hannaford, but also by a decrease of 100 basis points of our gross margin in Belgium, driven by more competitive landscape, resulting in price investments and more promotions.

Our SG&A stood at 21.3% of sales and was stable compared to last year as a percentage of sales. At EUR 161 million, our Q1 underlying operating profit decreased by 14.2% at identical exchange rates. Our UOP margin amounted to 3.1%, down 63 basis points, both at actual and identical rates, mainly as a result of a gross margin decrease as SG&A remains flat as a percentage of sales. When taking into account EUR 45 million of net financial cost, EUR 22 million of income tax expenses and the loss of EUR 10 million in discontinued operation, we recorded a group sharing net profit of EUR 80 million compared to EUR 51 million last year.

Net finance cost decreased as a result of a lower net debt, while tax expenses were lower last year due to nonrecurring tax benefits recorded in Serbia. We incurred a loss of EUR 10 million in discontinued operations, including EUR 40 million of impairment on Bulgaria and Bosnia, compared to a loss of EUR 48 million last year caused by stock holding charges. As a result, of the reclassification of Bulgaria and Bosnia in discontinued operation, our UOP improved by EUR 60 million for the full year 2013 and by EUR 5 million for Q1 2014. Both operations combined had a negative impact of EUR 26 million on a free cash flow last year and of EUR 9 million in Q1 this year. We generated EUR 46 million of operating free cash flow in the first quarter on top of the very strong EUR 255 million generated last year.

Slide 6 shows the evolution of our EBITDA and under EBITDA in Q1. As you can note, at identical exchange rates our EBITDA has slightly decreased to EUR 309 million while our underlying EBITDA decreased by 7.5% to EUR 312 million. At actual exchange rates, EBITDA decreased by 2.9% and underlying EBITDA decreased by 9.9%. The following slides gives you more insight on the revenue evolution at Delhaize America over Q1.

In Q1, we reported comparable-store sales growth of 4.6% with an underlying 0.2% retail deflation. Real growth was therefore positive at 4.8% for our 3 U.S. banners combined. We estimate the impact of weather at a positive 180 basis points on all of Delhaize America sales. Food Lion is the main driver of the good performance as we have seen momentum from the phase repositioning building up. At Hannaford, our [indiscernible] stay positive but the competitive landscape remains more active. When taking into account the negative 80-basis-point calendar impact and the 30-basis-point positive impact from store openings, our Q1 organic growth stands at 4.1%. While our retail inflation was still negative in Q1 at minus 20 basis points, it has been steadily increasing in line with cost inflation and in fact, turned positive in March. Our price inflation was about 1% lower than our cost inflation reflecting our price investment magnitude.

Slide 8 provides you with background information on our underlying operating margin evolution at Delhaize America. In Q1, we reported a UOP margin of 3.6% compared to 4% last year. Please note that last year's underlying operating profit figures have been restated for April 21, which recalls real estate taxes and other levies when due instead of trading them over the year. The drop in our UOP margin is entirely attributable to a 68-basis-point gross margin decrease as our SG&A as a percentage of sales have improved by 31% -- 31 basis points in Q1 in the U.S. More precisely, our price investments were around 70 basis points while the impact of snowstorms with product losses, with snow removal and utility cost also hurt our margin. We also faced increases in some commodity prices in fresh categories, which negatively impacted our gross margin. Of course, sales leverage and cost of goods sold savings have partially offset this impact.

The next slide present Delhaize Belgium sales evolution. In Q1, Delhaize Belgium comparable-store sales decreased by 0.8% and particularly suffered from a further stiffening of the competitive environment and the impact that the remodeling of the 3 large stores had on our network. Corrected for this remodeling impact, Delhaize Belgium, minus 0.8% same-store sales, would had been only of minus 0.3%. At 1.4%, our internal retail inflation was 70 basis points lower than what we experienced in Q4. With a negative calendar effect of 70 basis points and a positive 70 basis points from network expansion, Delhaize Belgium revenue decreased by 0.8%. As a result, our market share slightly eroded by 20 basis points in this first quarter compared to Q1 last year.

As shown on Slide 10, Delhaize Belgium underlying operating profit margin, again restated from April 21, decreased by a significant 170 basis points over Q1 from 4.8% in Q1 2013 to 3.1% in Q1 this year. This growth is explained by several elements; firstly, our price and promotion investments had a negative 70 basis points impact on the gross margin; secondly, extra supply chain cost were another 35 basis points. A portion of this is due to the start-up cost of our new fresh distribution center and is therefore, nonrecurring.

Thirdly, higher SG&A for 35 basis points as we continue to face the mounting pressure of our SG&A increase due to a high cost structure and salary taxation. These 75 basis points include nonrecurring redundancy cost of around 35 basis points. Therefore, out of the 170-basis-point drop in our Q1 UOP margin, approximately 65 basis points could be considered as nonrecurring.

On Slide 11, we provide you with the sales evolution in our Southeastern Europe segment. Bulgaria and Bosnia have been treated as discontinued operations. Our comparable store sales for Q1 stands at minus 0.4% for the segment. Once again, the performance varies a lot across the region. In Greece, our same-store sales in Q1 stand at 2.2%. In Romania, our same-store sales is 1.9%, while in Serbia, our volume evolution stayed negative in a very adverse economic environment, impacted by deflation. With a negative 50-basis-point calendar effect and a 440-basis-point positive impact from store openings, our organic growth for the region stands at 3.5%.

On this following chart, we provide you with more details on the margin evolution for Southeastern Europe. Our UOP margin decreased by 28 basis points from 2.2% in Q1 2013 to 1.9% in Q1 2014. This is exclusively attributable to a 54-basis-point increase in our SG&A as a percentage of revenues, resulting from the negative sales leverage in Serbia.

The following waterfall analysis provides a breakdown of our cash flow generation at actual FX rates in the first quarter. The weak link of the U.S. dollar had a negative impact of EUR 6 million on our Q1 free cash flow. Clearly, over Q1, our free cash flow generation has been supported by resolute EBITDA and continued CapEx discipline. Over Q1, our free cash flow was however negatively impacted by additional working capital needs, notably as a result of higher inventory in preparation for Easter. And also by EUR 57 million because of a significantly higher bonus paid at Delhaize America. As a reminder, bonus paid in 2013 for the year 2012 were limited, and bonus paid in 2014 for the year 2013 are back at normal level. As a result, our operating free cash flow stands at EUR 46 million over Q1. We have the first tranche of the proceeds from Sweetbay, Harveys and Reid's divestiture for $57 million or EUR 41 million, our total free cash flow for Q1 stand at EUR 87 million.

The remaining of the proceeds, $190 million or EUR 138 million, we will be received in the second quarter. Our net debt further decreased by EUR 82 million, down to EUR 1.4 billion at the end of Q1 2014. It is worth highlighting that our total net debt now represents about 1 year of EBITDA. Free cash flow generations remained a priority for us. Our objective is to generate a healthy level of free cash flow in 2013, '14, with notably further working capital improvement. I will now hand over to Frans to give you an update on our operations.

Frans W. H. Muller

Thank you, Pierre. Let me give you a brief update on our strategic initiatives. Slide 14 builds on what we showed you in March on Food Lion and details our current priorities. In the first quarter, both our 5 phases continue to post positive volume growth, transaction and item growth. And logically, we do see the more recent phases outperforming the older phases but even phases 1 and 2 stayed positive. In January of this year, we start to implement the first changes in our assortment at Food Lion. These changes will impact 50% of our assortments, with a net reduction of a SKU count of 18% and we expect that more than 1/2 of the desired changes will be implemented by the end of this year, with the rest being done in the first part of next year.

Of course, this process has to be carefully managed to avoid shrink and working capital impacts. The installation of our new checkout hardware and software systems has started and is now gaining speed after some initial hiccups. We are on schedule with the important associate training part of the new strategy. This is what we refer to as "Count on Me." We wanted to incorporate the customer much more in our company, culture and everything our associates do on a daily basis. We are working on introducing the first categories of products, which will be operational in a few months and to define our pricing strategy.

Furthermore, we are also implementing more professionalized promotions with the help of our loyalty cards data. The new pricing tool will allow us to be more sophisticated in our pricing architecture and in the monitoring of our price positioning. In addition, we are reviewing our private brands portfolio, with new branding and products, to have a clearer proposition to offer to our customers. Our concept store in Concord opened the 4th of December last year, continues to perform very positively. Within particular, an increase in number of items purchased per customer visit. Although we are careful not to extrapolate too much the performance of only just 1 store. We are looking forward to launch our first market test of our Easy, Fresh & Affordable strategy in the late summer, in the first 35 stores out of the 77 stores selected for this year. We want to fully validate the Easy, Fresh & Affordable strategy and its different components in order to take positions of how to best roll this out to the rest of the Food Lion network over the coming years.

Each different components of the new strategy will be checked with a combination of different metrics based on sales uplift, customer satisfaction and profitability. And let me give you a few examples. How many extra labor cost and hours do we want to allocate to the checkouts? How much extra sales do we see if we increase the service level in the checkout area and decrease waiting times? Does the Fresh -- Easy, Fresh & Affordable strategy have the same in effect on sales growth in a low volume store versus a high volume store. And what is the increase in financial performance and customer perception if we implement only the assortment changes without the other changes like the walk-in cooler for produce or the improved deli. We intend to share the early results of this market test with you at the end of the year and in the first quarter of 2015.

Just a few words on Hannaford now. We continue to see a more intense competitive environment driven by competitor store openings and a more promotional behavior from some of our peers. We could only partially reflect the increased purchase prices in our sales prices. Meat and dairy are 2 categories of products were just like at Food Lion, we see important cost increases. On the positive side, we had recently completed the remodeling in 5 of our stores and expect a positive sales uplift from this quarter. Despite not having a loyalty card at Hannaford, we are testing more targeted promotions with support of external partners, and in addition, we continue investing in prices.

We are planning to roll out Hannaford's To Go, our click and collect concept to 9 additional locations this year. And at Hannaford, we also have started to work on an assortment review for further differentiation in order to make our offering a real super launch. We expect the changes that Hannaford will see in this assortment to be more limited than at Food Lion, though.

Let me now to turn to Belgium on Page 15. A couple of weeks ago, we have re-opened 2 pilot stores which have been fully remodeled to reflect our Buy Well, Eat Well strategy. You can see some pictures of these stores on this and on the next slide, and you're also welcome to visit them in person, of course. Both stores Wezembeek and Braine-l'Alleud are very close to the center of Brussels. We wanted to make the difference to our customers, especially in the following areas. Firstly, fresh: this includes fruits and vegetables, where we have redesigned our stores to give more a market feel; improved availability and the expertise of our staff; stronger communication on local products; more tastings in our stores; a corner dedicated to organic products; and more products sold in bulk, as asked by our customers, availability of which is to help our customers and answer to their personalized needs. Furthermore, an improved availability of fresh breads just to give you a few more concrete examples.

Secondly, we are fine-tuning our assortment to make it as innovative and efficient as possible. We like to inspire our customers. We have enlarged our gluten-free product assortment and redesigned our wine department in our 2 pilot stores. Here as well, back in the U.S., the review of our private brands is underway. Thirdly, we have planned further investments in prices and promotion as you want to provide customers with the best everyday value. We're also focusing on further strengthening our imported affiliate’s network. And finally, we are looking at efficiency improvements to ensure funding for our different initiatives. Our SG&A continues to grow at a faster pace than sales, and we need to reverse this trend.

This brings me to page number 17. Slide #17 gives you a brief update on the actions that we are taking in our Southeastern European operations. While Greece and Romania performed well, both in terms of revenues and profitability, Serbia continues to face challenges and as you know, the country is faced with a significant growth in purchasing power and high unemployment. We are addressing our own situation and taking measures to reverse the trend. Our new slogan, always fresh, always close, always Maxi, focuses on our core strength. We have improved our assortment in fresh and in addition, we are planning commercial campaigns around assortment and price to improve our price perception.

We are currently testing our improved strategy in 15 remodeled stores and 2 new stores at Maxi across the capital of Belgrade. We believe we can further simplify the way we do business in Serbia. The opening of our new distribution center in a few months should help us to reach this goal. And actions in Greece and Romania are focused on maintaining or even accelerating to current positive trends.

On page 18. In summary, our first quarter performance was a mix picture with very strong top line growth in the U.S., but a disappointing result in Belgium. While in Southeastern Europe, Greece and Romania continue to perform well but Serbia remains below expectations. As a group, we are convinced that we have to tackle the unfavorable trends in SG&A and we have the ambition to lower it to historical levels, which are 20.7%.

Also, we will focus on the stronger performance culture and accountability. I'm convinced that we have a pool of experienced associates that can deal with these challenges.

Today, we also reiterate the guidance provided in March of CapEx of around EUR 625 million at identical exchange rates and 180 new stores. And as Pierre already indicated, generating a healthy level of free cash flow remains, too, a priority for us. We are underway to make our group stronger. Food Lion is preparing for its Easy, Fresh And Affordable strategy with market test launches in a few months, and alas, Belgium continues to operate in a very difficult trading environments and needs to recapture its differentiated position while improving efficiency.

And I would like to open the floor for questions. So please, operator, could you give instructions and lead the Q&A session?

Question-and-Answer Session

Operator

[Operator Instructions] And we'll now take our first question from Fabienne Caron of Kepler Cheuvreux.

Fabienne Caron - Kepler Capital Markets, Research Division

I've got mainly 2 questions on Belgium. First one, can you tell us in which respect your mix between promotion and the EDLP has changed as the market is very competitive. So can you remind us how much is your promotion in percentage of sales and how do you expect it to evolve? The second one will be when you do your pilot store, do you cut prices? Can you give it a feeling of is there a price difference between the new pilot stores and is this different as well in number of SKUs? And finally, sorry, another one. Q1 trading, how was April and Easter in Belgium? And so the first one, out of the 65, you say you had 65 basis points of cost in Belgium due to a layoff that could be taken as nonrecurring. Do you expect any more of those for the remaining part of the year?

Pierre Bruno Charles Bouchut

Let me just start by answering your last question, Fabienne. We said that out of the 170 basis point drop of our UOP margin, 65 basis points are explained by nonrecurring elements. Out of which 35 are due to redundancy cost, which were taken in the first quarter, and another 30 basis points also because of the start-up of our new DC Fresh in Belgium. The DC Fresh stocking phase has closed on actually at the end of April, so we still have some impact in April but not normally any more for the year. Redundancy costs, of course, is nonrecurring but we may be continue to face some redundancy cost through the year. Then you are -- if we understood you correctly, I'm going to summarize your question because it was not very clear. You want to know the percentage of the promotion as a percentage of sales, on one hand, and you want to know in the pilot stores, if we have changed the assortment structure on one hand and the pricing position on the other hand, is that correct?

Fabienne Caron - Kepler Capital Markets, Research Division

Exactly.

Frans W. H. Muller

Yes, on the assortment, Fabienne, I mentioned already that the store has a completely new look and feel mainly also on the fresh assortments. So apart from wine, I think on the dry grocery assortment there were not this much changes apart from a few assortments like gluten-free, organic and these kind of things. The main difference you see in the stores on the assortment of fresh, where we have increased a number of articles in the fruits and veg, butchery and also, foremost, the bakery as well. Bakery will be a very important one for us in Belgium. We think that we can make absolutely a difference there. Fresh fruit and vegetable is one of our anchors in Belgium in our assortment, both in price perception but also in customer traffic. So it's mainly changes in the fresh assortment with a few elements in dry grocery. The other question was on promotional sales. We normally don't report on those kind of things but you should roughly think about a 10% range.

Pierre Bruno Charles Bouchut

And you also had of question on current trading in April.

Fabienne Caron - Kepler Capital Markets, Research Division

Yes.

Pierre Bruno Charles Bouchut

I think maybe as a summary, current trading in April, adjusted for the calendar impact because of Easter, obviously, in April, I would say is very similar to what we have enjoyed in Q1. So we -- extremely solid and strong in the U.S. Sales front is about the same in Belgium, once again, adjusted for calendar impact. Maybe the only, I would say, difference being in Serbia where it looks as if the first run is better in April than it was in Q1. That's a global summary.

Operator

And we'll now take our next question from Andrew Gwynn of Exane.

Andrew Gwynn - Exane BNP Paribas, Research Division

Two questions, if I could. First, this one's on the U.S. again. Some suggestion that competitive tension is stepping up. So I'm wondering if you could elaborate a little bit more on that. I think you said it's stepped up in Q1 certainly with the full year results but has it got even worse, almost? The second question just goes a little bit more detail into Belgium. You've mentioned a few times this desire to essentially improve the SG&A ratios. Are you able to be a bit more specific as to what is going on there? Clearly one of the big pop-ups of SG&A will be delivery [ph] expense and that clearly presents some very long-term challenges. Are there any significant initiatives underway to tackle that?

Frans W. H. Muller

Okay. The line was not so clear but I'll try to give a [indiscernible] as possible, as best as possible an answer. Talking about competitive pressure in the U.S. I think we see differences between the Southeast and the Northeast. To start with the Northeast, we already highlighted in our March round of talks that we see more competitive promotional action in the Northeast. We made makes some references to competitors like Shaw's and to Market Basket, which runs various promotional programs, for 4% on everything to 3 days [indiscernible] pressure from Shop and Go, Stop and Go, and this is the reason why we also work in the Northeast now with Hannaford to make sure that we stay competitive and that's why also when we slightly refer to some pricing business we had to make at Hannaford, that is the reason to make sure that we do not lose share. On the Southeast, always has been very competitive, I would say, unchanged scenario in the last couple of months there. And there, the regular discount competition, Wal-Mart competition. And so far, we have not seen a clear action from Kroger and Harris Teeter. But we expect that there will be something there with Harris Teeter, as well.

Andrew Gwynn - Exane BNP Paribas, Research Division

Just on the Northeast, you said that -- I think you said Stop and Go. What's…

Frans W. H. Muller

I'm so sorry, Stop & Shop. It's certainly confusing for us.

Andrew Gwynn - Exane BNP Paribas, Research Division

Yes, there are so many different names.

Frans W. H. Muller

Yes. So that is in the Northeast and they announced now that they would like to price more aggressively and we have to assess this as only news from the last days. Then on SG&A Belgium, that, I think it was your second question. We work on a regular basis, on a daily basis, on reducing our cost in Belgium. As you know that we have structural cost disadvantages over competition. We just mentioned the DC Fresh, which will bring some relief in our supply chain cost after the starting-up issues, which we have now under control. The second thing with a lot of initiatives to increase productivity also in the stores, self-checkouts and these kind of things and the team is also asked now to find good solutions for our structural cost disadvantage. And that is the task the team has at the moment.

Andrew Gwynn - Exane BNP Paribas, Research Division

Again, I -- sorry, just to elaborate on that. I mean, would we expect a significant project, not dissimilar to say how Carrefour acted a few years ago. Is there a major step change in how you deal with unions and so forth, how they negotiate and all of that underway, or is that maybe a bit too bold at the moment?

Frans W. H. Muller

Well, it's foremost a little too early to talk about this because I tasked, and we as management tasked the Belgium team, to come up with a plan or solutions to make sure that we can smoothen our structural cost disadvantages. And let me wait first for getting the plan in before we see what their solutions are.

Andrew Gwynn - Exane BNP Paribas, Research Division

And then just a real final, sort of, cheeky question. If you look at group EBIT it was down about 14% in Q1. And I appreciate there are some sort of one-off impacts in there. But for the full year, should we expect the full in profit, say, of high single-digit amounts? Would that be unreasonable?

Pierre Bruno Charles Bouchut

I think today, I would say our expectation and our forecast is very precisely in line with the market consensus. This is what we can say. So you can derive by yourself the underlying operating profitability that we are expecting.

Operator

Our next question comes from Patrick Roquas of Rabobank.

Patrick Roquas - Rabobank Equity Research

I've got 2 questions focusing on Belgium. Firstly, can you remind us about your pricing strategy? Is it that you're implementing fixed price reductions or are you doing more promotions and/or deeper promotions? That's my first questions. And second, on the new generation concept stores, how many of these stores do you expect to do this year?

Pierre Bruno Charles Bouchut

On the pricing strategy, it's true that we have slightly increased our promotion, but as Frans had indicated to you, it's a marginal increase. I mean our promotional levels stand between 10% and 12% in Q1. And as you know, we intend to continue to invest in our sales price and in particular, we are very attentive to maintaining the maximum price difference between we and Colruyt. As you know, Delhaize has been fighting for years to curb down the price difference from 10% to both 3% to 4% and we want to maintain this price difference as a maximum. This is, I would say, a sort of a summary strategy -- to summarize the strategy as in 1 configuration. Regarding the number of new generation stores...

Frans W. H. Muller

Yes. We've opened 2 of them in Wezembeek and Braine-l'Alleud roughly 10 days ago. Wezembeek is absolutely according to expectations. Although after 10 days you can say -- don't say that much. Braine-l'Alleud is doing much better than expectation, which is very nice to see. And we plan 2 more of those remodelings. So that we have in total 4 of those remodelings this year of the next-gen stores, so to say. We can do an even better job there in during the remodeling process, not to lose too much sales. We indicated that in the first quarter, with 3 big remodelings, we lost quite some sales during the remodeling phase. Stores are partly closed, so we had to park temporary solutions in tents or in parking areas and I think we, together with the team in Belgium, come up with solutions to do this even in a better way so that we have less interruption of -- for our customers on the sales levels. So 4 stores this year. The first 2 stores are on level, but only started 10 days ago.

Pierre Bruno Charles Bouchut

And maybe in the future, we could say that our plan is to haul it over at the pace of about 20 store hauls per brand.

Frans W. H. Muller

Yes, we remodeled 20 stores per year, which is -- if you talk about those big remodelings that -- the next generation store, then the answer is, for this year, 4, but normally, we are on remodeling pace of 20 a year.

Operator

We will now take our next question from James Grzinic of Jefferies.

James Grzinic - Jefferies LLC, Research Division

I have 3 quick ones, please. The first one is, can you perhaps clarify what the weather impact was on that really good Q1 U.S. comp store sales growth? And second one is, I just wondered where the big changes in market share shift were you taking from at full line that you used to be losing to, historically? And I guess, the third one just to clarify you have not seen action at Harris Teeter. And I'm just asking because over the past couple weeks, the local media, particularly in North Carolina, seems to be reporting otherwise.

Pierre Bruno Charles Bouchut

We were very precise in indication -- in indicating, I'm sorry, that our estimates of the weather impact in the U.S. for the 3 banners combined was about 180 basis points.

James Grzinic - Jefferies LLC, Research Division

Pierre, I was wondering more from a full line perspective, I guess, which I would guess would have benefited.

Pierre Bruno Charles Bouchut

Yes, no big difference as you know. It's just about the same.

Frans W. H. Muller

On the competitive pressure positioning, Harris Teeter, specifically, I already mentioned and I think we have the same source, that local newspapers highlighted that we can expect something there that Kroger will invest some of the synergies into pricing. We monitor this, as you can imagine on a very close and detailed basis. So far, we have not seen a pattern of how and why and where they're going to invest. Again, although we have quite a big price difference to Harris Teeter of roughly 15%, we are far away from any arrogance and complacency and we will look into this very carefully. I have the statement always, "A kilo of tomatoes not sold at Food Lion is a lost kilo." So we look very carefully at those developments there. And I also mentioned before that in the Northeast, looking at the number of peers I mentioned before, we also have this very clearly on our daily monitor on checking what's going on.

James Grzinic - Jefferies LLC, Research Division

And Frans, just on that full line Harris Teeter point, would it be fair to assume that Harris Teeter has been a big source of share to you? That it's probably been a big part of Food Lion's momentum improving? Or...

Frans W. H. Muller

We've got the question in March also from one of your colleagues, and it's of course not so easy to say, but overall we expect, based on the neighborhood position of our supermarket network of Food Lion, very good, traditional food retailer with excellent locations, that we both take from discount and from Wal-Mart. But bigger part most likely from Wal-Mart is our assessment. And Harris Teeter, we think, at the moment, there's always some overlap. But we also think it's in -- partly a different type of customer, who's prepared also to pay a higher price for their baskets.

Operator

Our next question comes from Sreedhar Mahamkali of Macquarie.

Sreedhar Mahamkali - Macquarie Research

Three questions for me, as well, please. Firstly, just in terms of U.S. margins and where consensus today is, which looks to me like it's flat year-on-year in FY '14 versus '13. You've very clearly hinted at annualizing price cuts from second quarter onwards and you're also suggesting strong sales momentum is continuing. So shouldn't we be expecting, on the back of those 2 factors alone, the margin from operating leverage and lack of price cuts to be going up in the rest of the year in FY '14? That's the first question on the U.S. And secondly, in the context of Belgium, it certainly is a disappointing number, as you said in terms of revenues. But on a broader view, do you think this is likely to be a negative like-for-like year for Delhaize Belgium? Or is there a way you can see some of the measures you're putting in place now can reverse this, especially as you comp quite tough numbers in the second half of the year. And finally, I think on Belgium, in March, suggested not to extrapolate the Q1 margins for the rest of the year. If you have any updated thoughts on that, that will be very helpful.

Pierre Bruno Charles Bouchut

In the U.S., clearly, as you know, our H1 comparable basis is difficult versus last year and we do not expect a significant improvement at all in -- as a result in Q2, as well. But we have, as you know, a much better comparison basis in H2 and we do expect in H2 a -- normally, an increase of our UOP margin in the U.S. And as a result, yes, you can say that it could be more a flat throughout the year. In Belgium, we are also confronted, to certain extent, with the same -- to the same situation and we'd also expect Q2 to be difficult with some potential underlying improvement in H2.

Frans W. H. Muller

And the competitive environment in Belgium will not change. It will stay very competitive, both from new openings of competitors, as well as the discount in gaining market share. So that will continue but as I said before, the Belgium team is implementing and working very hard on their new campaign, which started quite nicely, so to give, going forward now, an outlook on how Belgium will develop I think is a bit too early at this stage.

Frederic van Daele

Operator, can we perhaps go to our last question, please?

Operator

Certainly. We will now take our final question from Jerome Samuel of HSBC.

Jerome Samuel - HSBC, Research Division

Just a follow-up on margin piece. Can you come back on the gross margin evolution. I think you mentioned minus 60 bps margin decline in the U.S. and minus 100 bps in Belgium. Is that right? And can you also provide the result for Southern, Eastern Europe, please?

Pierre Bruno Charles Bouchut

Yes. Let me review the figures because certainly we said that the gross margin decrease in the U.S. was of 68 basis points and of 100 basis points in Belgium. This is what we said for Q1.

Jerome Samuel - HSBC, Research Division

Okay. And how does it match the 62 bps decline for the group?

Pierre Bruno Charles Bouchut

Southeastern Europe is moving up.

Jerome Samuel - HSBC, Research Division

Significantly.

Pierre Bruno Charles Bouchut

That was 30 -- precisely 34 basis points.

Frederic van Daele

Okay. Thank you, all, for participating in today's call. A replay is available on the website, as I said in the beginning. If you have any additional questions, do not hesitate to contact our Investor Relations department. Delhaize Group will announce its second quarter results on Thursday, August 7, 2014. Thank you, and have a nice day. Bye-bye.

Operator

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.

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