Grocery chain beats estimates, earns $386M in first quarter, luring shoppers with lower-priced food, gas and drugs.
CINCINNATI (AP) -- Kroger Co. said Tuesday that food, gas and drug discounts helped draw budget-conscious consumers into its stores for one-stop shopping, boosting its first-quarter profit by 15%.
The nation's largest traditional grocery chain's results beat Wall Street expectations and Kroger raised the lower end of its earnings guidance for the year. Its shares surged almost 8% by midday Tuesday.
Kroger (KR, Fortune 500) earned $386 million, or 58 cents per share, for the quarter ended May 24 compared with a profit of $336.6 million, or 47 cents per share, a year ago.
Revenue rose 12% to $23.11 billion from $20.73 billion a year ago.
Analysts polled by Thomson Financial expected a profit of 55 cents a share on revenue of $22.32 billion.
Last year's quarterly earnings were reduced by 2 cents per share by costs from a labor disruption at a distribution center, the company said.
The Cincinnati-based company also raised the lower end of its fiscal-year earnings guidance. It now expects earnings of $1.85 to $1.90 per share, from a previous range of $1.83 to $1.90 per share. Analysts forecast $1.90 per share.
Kroger reported that sales at stores open at least five quarters, considered a key indicator of a retailer's strength, rose 5.8% excluding fuel, and 9.2% including fuel sales for the quarter. That spurred the company to raise its full-year guidance for same-store sales growth from 3% to 5% to 4% to 5.5%, excluding fuel sales.
Kroger shares rose $1.97, or 7.6%, to $27.97 in afternoon trading Tuesday. The shares have traded between $23.39 and $30.21 in the past year.
The gas, pharmacy and food discounts help draw customers trying to save gas as costs rise by combining trips, and Kroger also says people are eating more meals at home. Sales in its deli-bakery sections were strong, as were for its own store brands, which are usually priced lower than national brands and provide bigger profit margins for Kroger, the company said.
"Certainly, in this environment, customers are responding to offers that really hit home with them, are important to them," David B. Dillon, Kroger chairman and chief executive, told analysts in a conference call.
"Kroger continues to help customers stretch their budgets in a number of ways, including lower prices and our expanded generic drug and gas discount programs," Dillon said, estimating Kroger price discount programs save customers $1 billion total annually.
Grocers are facing rising costs for dairy, grains and other staples, as well as higher fuel costs to transport goods.
But Kroger has responded with stepped-up loyalty programs in which frequent shoppers earn gasoline discounts, usually 10 to 15 cents a gallon, at store stations, a program the company recently expanded nationally. Kroger was one of the first retailers to lure shoppers with economic stimulus checks by offering 10% bonuses on store gift cards, and it also expanded its discount on generic drugs, offering 90-day prescriptions for $10 and covering more women's health medications in addition to 30-day generic drug supplies for $4.
The company also has promoted discounts such as four half-gallons of milk and juice for $5 and 10-for-$10 specials such as on canned tuna for regular customers, and Kroger-branded credit card customers can earn store rebate checks.
The company says it has augmented price discounts with improved customer service and wider selections of food and merchandise.
Lehman Brothers analyst Meredith Adler said in a recent note that Kroger's strategy of investing in lower prices in many markets and identifying non-price factors to satisfy customers has been beneficial.
"We are confident that Kroger will be the success story in the supermarket industry, and we see it driving strong earnings growth for many years into the future," Adler wrote.
Kroger operates 2,474 supermarkets and multi-department stores in 31 states under two dozen local banners, including Ralphs, Fred Meyer, Food 4 Less, Fry's, King Soopers, Smith's, Dillons, QFC and City Market.
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