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Kroger Blames Labor Dispute for Profit Drop

First-quarter net income declines 25% from a year ago as a result of the grocer strike and lockout in California.

June 23, 2004|James F. Peltz | Times Staff Writer

Kroger Co., citing the final effect of the 4 1/2-month California labor dispute on its Ralphs grocery chain, Tuesday said its fiscal first-quarter profit tumbled 25% from a year earlier.

The dispute erased $71.6 million of Kroger's net income -- equal to 10 cents a share -- in the 16-week quarter ended May 22, Kroger said. That was the main reason the Cincinnati-based company's overall profit fell to $262.8 million, or 35 cents a share, from $351.5 million, or 46 cents a share, a year earlier.

Kroger was forecast to earn 34 cents a share, according to analysts surveyed by Thomson First Call. Kroger's first-quarter sales rose 4% to $16.9 billion from $16.3 billion.

The dispute ended Feb. 29 when the three chains that were bargaining jointly -- Kroger, Albertsons Inc. and Safeway Inc., which owns Vons and Pavilions -- reached a new three-year contract with the United Food and Commercial Workers union.

The UFCW struck Safeway on Oct. 11, and Kroger and Albertsons then locked out their union workers in a show of corporate solidarity. The dispute idled 59,000 workers at 852 supermarkets in Southern and Central California, including 300 Ralphs stores, and sent millions of shoppers to alternative grocery stores.

Ralphs didn't suffer as much as the other two chains because, early in the dispute, the UFCW removed its pickets from Ralphs locations to focus pressure on Safeway and Albertsons.

However, the union's move triggered a controversial mutual-aid pact among the grocers, under which Kroger agreed to help compensate its two rivals with cash payments. The companies had devised the plan as a way to share the pain of lost sales during the strike and lockout.

California Atty. Gen. Bill Lockyer has sued Kroger and the other two companies over the agreement, alleging that their sharing of money violates federal antitrust laws. The companies contend that the agreement is legal.

In April, Kroger said it set aside $116 million in pretax funds to pay the others through its fiscal year that ended Jan. 31. On Monday, Kroger said it added $31.9 million to the agreement in this year's first quarter, so its overall pretax payments to Safeway and Albertsons totaled $147.9 million.

Analysts have estimated that, after taxes, Kroger's actual cash payout to the other chains would be more than $75 million. Kroger spokesman Gary Rhodes declined to specify the exact amount, but said the payments were made in full during the first quarter.

Kroger, which also operates the Food 4 Less grocery chain in Southern California, overall owns 2,536 supermarkets in 32 states, along with hundreds of convenience stores, jewelry stores and food-processing plants.

Kroger shares rose 47 cents to $17.84 on the New York Stock Exchange.

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