Kroger Raises Earnings Forecast on Stronger Sales
06/14/2012| 10:31am US/Eastern
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--Kroger's F1Q earnings rose 1.6%
--Kroger's F1Q identical-store sales rose 4.2%, excluding fuel
--Shares rose 3.6% to $22.05 recently
(Updates with additional background information on the competitive landscape throughout.)
By Annie Gasparro and Tess Stynes
Kroger Co. (>> The Kroger Co.) says it will generate a higher profit this year than it originally expected, as its fiscal first-quarter earnings rose 1.6%, led by stronger sales at its established grocery stores.
Kroger's shares rose 3.6% to $22.05 recently, as the company's board also authorized a $1 billion stock repurchase plan, furthering investor confidence.
Kroger, the nation's largest traditional grocery retailer, has been able to increase its customer traffic in recent quarters while competitors such as Safeway Inc. (>> Safeway Inc.) and Supervalu Inc. (>> SUPERVALU INC.) are trying to stanch declines in sales volumes and identical-store sales, respectively.
Kroger has been able to maintain its sales momentum despite consumer caution amid an overall sluggish economy, high gasoline prices and a weak jobs market. In the latest quarter, identical-store sales, or those open for 15 months, increased 4.2% excluding fuel sales.
For the year, Kroger raised its per-share earnings estimate to $2.33 to $2.40 from its prior estimate for $2.28 to $2.38 and affirmed its estimate for identical-store sales excluding fuel growth of 3% to 3.5%.
However, Kroger's stock is still down over 9% this year, as the economic headwinds put pressure on its margins. Kroger's first-quarter operating margin fell to 2.8% from 2.95% as merchandising expenses were up 6.8%.
Traditional grocery stores also face increased competition from club stores such as Costco Wholesale Corp. (COST), dollar stores like Dollar General Corp. (>> Dollar General Corp.), discount mass retailers such as Wal-Mart Stores Inc. (WMT) and trendy, organic chains like Whole Foods Market Inc. (WFM).
Kroger is managing the tough competitive environment by cutting business costs and reinvesting the savings into lowering prices on some items, offering tailored coupons and discounts to consumers and broadly trying to improve the shopping experience to build customer loyalty.
One advantage Kroger has over many supermarket companies is its size and scale, with 2,435 stores under multiple brands.
Kroger's new buyback program replaces an earlier one that was exhausted on Tuesday. Kroger said it repurchased 14.6 million shares for a total $345.3 million during the first quarter.
For the quarter ended May 19, Kroger reported a profit of $439.4 million, or 78 cents a share, up from $432.3 million, or 70 cents a share, a year earlier. The latest period and the year-earlier period both included inventory-related charges of $46 million. The company had projected earnings would be flat to slightly positive from a year earlier.
Revenue increased 5.8% to $29.1 billion, and grew 4.3% excluding fuel sales. Analysts polled by Thomson Reuters recently projected $29.13 billion.
Write to Annie Gasparro at annie.gasparro@dowjones.com
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