(Bloomberg) -- Supermarket operator Royal Ahold Delhaize NV lowered its profit forecast due to an 11-day strike at its Stop & Shop chain in the U.S. that crippled sales, spoiled produce and drew support from several Democratic presidential candidates.
The Dutch-Belgian retailer reached a tentative agreement with five local units over the Easter weekend, allowing employees to return to work. The strike affected 246 of Stop & Shop’s 415 stores, some of which were visited by presidential candidates including Elizabeth Warren, Pete Buttigieg and Amy Klobuchar. Shares of Ahold Delhaize fell as much as 5.5 percent Tuesday in Amsterdam.
The agreement marks an end to one of the biggest U.S. retail strikes in years after 31,000 employees in three New England states walked off the job. The discord comes at a bad time for the grocer, which generates about 60 percent of its sales from the U.S. and is trying to revive Stop & Shop after several years of sluggish performance.
Ahold Delhaize lowered its outlook for underlying earnings-per-share growth to low single digits from high single digits on Tuesday. The retailer also said it expects its adjusted operating margin to be slightly lower in 2019 than last year. Ahold Delhaize made the statement after a holiday in Europe on Monday.
Chief Executive Officer Frans Muller said the agreement is “fair and responsible” for both sides. Union members will probably ratify the accord within a week, he said on a call.
Compensation for future workers was a flashpoint in the strike, with Ahold Delhaize seeking to cut costs partly by providing less generous terms for employees who join Stop & Shop in the years ahead. While unionized companies battling non-union competitors have sought such two-tier arrangements in all sorts of industries, some labor groups that acceded to them have since battled successfully to phase them out.
If approved by members, the agreement would provide across-the-board wage increases and defeat a slew of concessions sought by the company, according to the United Food and Commercial Workers union. However, part-time employees hired in the future would receive less in pension contributions and wouldn’t be guaranteed time-and-a-half pay when working Sundays during their first three years.
The strike lopped about $90 million to $110 million from Stop & Shop’s earnings as the retailer lost sales, had to replace produce that perished and suffered additional supply costs, Ahold Delhaize said. That would be about 3 percent of the average estimate for 2019 operating profit, according to data compiled by Bloomberg.
This was the biggest contract Ahold Delhaize had to renegotiate, and the next wage talks will be in October for the Giant-Landover chain, Muller said.
The company maintained its forecast for free cash flow this year, saying that it will try to offset the $100 million impact by measures such as delaying or reducing investment plans. Muller said the company will give an estimate on the effect of wage costs only after the unions vote on the agreement.
Ahold Delhaize, formed by a merger of the largest supermarket operators in Belgium and the Netherlands in 2016, has a history off relatively smooth labor relations. The companies that combined have been operating on the East Coast for decades, and Muller said relations with unions have been good for the past 25 years.
“We were surprised ourselves by this unfortunate event,” the CEO said.
(Updates with CEO comments starting in fifth paragraph.)
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