Ralphs parent Kroger says first-quarter earnings rose nearly 16%

Ralphs operator Kroger Co. rang up double-digit increases in fiscal first-quarter revenue and net income as the grocery chain’s fuel stations and loyalty discounts helped draw more frequent shoppers when gasoline and food prices rose.

The nation’s largest traditional grocery operator now expects better results for the full year than earlier projected, even though U.S. economic improvement appears to be stagnating. That could help Kroger if people eat more meals at home instead of in restaurants and look for ways to manage spending because of high gas prices.

Kroger said Thursday that it had both been adding new customers and increasing the number of regular shoppers who earn rewards such as fuel discounts and special coupons for items they buy often.

“With inflation and rising gas prices, customers’ budgets are stretched,” said Rodney McMullen, Kroger’s president. “The value we offer them through lower everyday prices, weekly features and personalized rewards to our loyal customers continues to resonate with them.”

Kroger said it had cut costs in areas such as store energy use and product distribution and used that money to discount groceries — McMullen estimated by $2.1 billion a year — even while passing along product cost inflation estimated at 3.5% to shoppers.

The Cincinnati company said net income in the quarter ended May 21 rose to $432.3 million, or 70 cents a share, up nearly 16% from $373.3 million, or 58 cents, a year earlier. Revenue increased 11% to $27.5 billion.

Analysts expected earnings of 64 cents a share on $26.4 billion in revenue. Kroger shares rose 4.5%, or $1.04, to $23.99. They have traded from $19.57 to $25.48 in the last year.

Kroger has steadily expanded its fuel business and has more than 1,000 gas stations at its nearly 2,500 stores. Without gas sales, Kroger said revenue was up 5% for the quarter.

Shoppers using Kroger loyalty cards can earn rewards of up to $1 off a gallon at store gas stations. Kroger has also expanded a tie-in with Shell Oil that gives customers 10 cents off a gallon of Shell gas.

“We believe the combination of having gas near our supermarkets is a very strong convenience,” said David B. Dillon, Kroger’s chairman and chief executive. “Customers also like the tie-in with our store sales.”

Revenue at supermarkets open at least five quarters, a key retail indicator that doesn’t count newly opened stores, rose 4.6%, excluding fuel sales.

Kroger expects earnings for the full year of $1.85 to $1.95 a share, up from an earlier projection of $1.80 to $1.92, and expects profit to be near the high end of the range. Analysts surveyed by FactSet expected earnings of $1.92 a share on revenue of $87.6 billion.

Kroger also raised its outlook for revenue growth at stores open at least five quarters to between 3.5% and 4.5% for the year, up from 3% to 4%, excluding fuel. Kroger has posted 30 straight quarters of increases in the measure.

Kroger operates grocery stores in 31 states, some under local banners such as Ralphs, Fred Meyer, Fry’s, Smith’s, Food 4 Less and King Soopers.