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Kroger posts 16% gain in profit, raises forecast

December 06, 2006|From the Associated Press

CINCINNATI — Kroger Co.'s stock jumped Tuesday after the parent of the Ralphs grocery chain said its quarterly earnings rose 16% and it raised its outlook for the year.

Kroger credited price cuts, wider varieties of foods and merchandise and improved customer service for its growth.

The Cincinnati-based company, the nation's largest traditional grocery chain, is facing tough competition from discount chains led by Wal-Mart Stores Inc. and from higher-end niche players such as Whole Foods Market Inc.

"Our results are being achieved by a balanced approach and are being impacted by more than just the price," David B. Dillon, Kroger's chairman and chief executive, told analysts.

The company's stock rose $1.16, or 5.2%, to $23.49 after hitting a 52-week high of $24.33 during the day.

Kroger earned $214.7 million, or 30 cents a share, in its fiscal third quarter ended Nov. 4, compared with $185.4 million, or 25 cents, a year earlier.

Revenue rose 5% to $14.7 billion.

Analysts surveyed by Thomson Financial had expected earnings of 28 cents a shares on revenue of $14.86 billion.

Sales at stores open at least five quarters, considered a key gauge of industry performance, rose 4.9% including gasoline sales, and 5.3% excluding fuel sales. The company expects same-store sales growth to top 5% in the fourth quarter, excluding gasoline.

Kroger raised its estimate for earnings-per-share growth to 8% to 10% for 2006. The grocer previously estimated per-share growth at 6% to 8%.

The new range implies earnings of $1.41 to $1.44 a share, compared with year-earlier earnings of $1.31. Analysts expect $1.45 a share.

Dillon said that even though gasoline prices had come down, Kroger still seemed to be benefiting from customers shopping close to home, saving money by eating meals at home instead of in restaurants and wanting to eat at home with their families.

Lehman Bros. analyst Meredith Adler said in a recent note that Kroger's strategy had led to a strong, improving competitive position.

"Kroger appears to be reaping the benefit from the decision made several years ago to invest in lower prices in many of its markets and to identify the key nonprice factors that would make customers happy," Adler wrote.

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