Kroger’s Profit Up as Price Cuts Boost Sales by 8.2%
Ralphs grocery chain parent Kroger Co. said Tuesday that fiscal first-quarter profit rose 4.1% as price cuts spurred sales.
Net income for the period ended May 20 increased to $306.4 million, or 42 cents a share, from $294.3 million, or 40 cents, a year earlier, Cincinnati-based Kroger said. Sales jumped 8.2% to $19.4 billion.
Kroger also increased legal reserves, slicing 3 cents from per-share net income, to cover its exposure from charges that Ralphs store managers violated federal law by secretly rehiring nearly 1,000 locked-out workers during the Southern California supermarket labor dispute that ended in February 2004.
A federal grand jury in Los Angeles returned a 53-count indictment in December; the company pleaded not guilty in January.
Excluding the 3-cent expense for legal reserves, Kroger said that it would have earned 45 cents a share. The average analyst estimate was 42 cents in a Thomson Financial survey.
Kroger raised its estimate for sales growth at stores open at least a year to 4% from 3.5% for the 12 months ending Feb. 3.
Chief Executive David Dillon has lowered prices, reduced wait times at checkout counters and added more organic foods to compete with Wal-Mart Stores Inc. and warehouse clubs such as Costco Wholesale Corp. Kroger also has opened fuel stations at some supermarkets.
“The top-line growth seems to be growing faster than people expected,” said David Fleer, a money manager at Los Angeles-based Bristlecone Value Partners, which has $525 million in assets, including Kroger shares. “They are doing more than just holding the line against Wal-Mart. They are making some real progress in terms of taking market share.”
The stock jumped $1.01, or 5%, to $20.47, its biggest gain of the year.
The company forecast per-share profit growth of 6% to 8% for the year ending in February. Excluding an increase in legal reserves, Kroger said that it expected earnings growth of 9% to 11%.
“The sales growth we achieved was solidly across all store departments and across geography,” Dillon said on a conference call. “We are getting our best customers to shop more often with us.”
Identical store sales, which don’t include results from new and replacement stores, climbed 5.6% in the quarter, excluding fuel sales. That’s the best pace since 1999.
Wal-Mart, with grocery sales of $98.7 billion, is the biggest seller of groceries in the U.S. with a 23% market share in 2005, according to Progressive Grocer magazine. Kroger is second with 14%.
