Though bond spreads have already widened significantly for Royal Ahold NV, an international supermarket retailer headquartered in the Netherlands, a buy-side analyst suspects that the worst may be yet to come. Arguing that the company has grown largely through acquisitions, the analyst calls Ahold "the WorldCom of supermarkets." While she has no evidence to suggest that the company is fudging its numbers, she questions how same store sales could be growing by roughly 4-5% along the Eastern seaboard, while competitors such as Krogers and Delhaize Group are seeing sales anywhere from slightly down to barely improved. "It's really hard to imagine that when same store sales are unchanged everywhere else, Ahold is just kicking everyone's butts."
Dave Novosel, head of corporate bond research at Banc One Capital Markets, says Ahold's sales outlook for next year and its projected margin expansion may be too optimistic. "It will be difficult based on what we've seen from other supermarket operators in terms of gross margins as of late," he says. He also worries about the company's extensive exposure to weak foreign markets including Latin America. Nonetheless, since Ahold has already widened by some 100 basis points relative to Krogers in recent months, he does not see much further weakness, and rates the bonds a "Hold." Ahold's 8.25% notes of '10 were bid at 280 basis points over Treasuries last Wednesday.