Earnings Preview: Kroger Co.

AP News
Posted: Dec 04, 2009 6:23 PM

The Kroger Co. reports third-quarter earnings Tuesday before the market opens. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: Cincinnati-based Kroger, the nation's largest traditional grocery store chain, has seen sales growth slow in the recession. Even though many Americans have cut down on eating out, they've also closely minded their grocery spending. Chains have relied on price cuts and promotions to compete for their business.

With unprecedented numbers of people using food stamps to buy groceries, warehouse club chains such as Costco Wholesale Corp. have increasingly begun competing with Kroger and other grocers for those shoppers. Kroger has added signs and employee training to make sure customers using government help feel welcome.

Kroger officials have said they are focused on long-term growth and see the current hard times as a chance to build customer loyalty. They've reported rising sales of Kroger's lower-priced in-store brands, including the no-frills Value brand.

Kroger has some 2,470 stores in 31 states under two dozen local banners that include City Market, Dillons, Food 4 Less, Fred Meyer, Ralphs and King Soopers.

BY THE NUMBERS: Analysts polled by Thomson Reuters expect earnings of 36 cents per share, the same as last year's third quarter, which was hurt by Hurricane Ike's damaging impact in key markets. They expect revenues of $17.7 billion, up slightly from $17.6 billion for the same 2008 quarter.

For the full year, analysts project earnings of $1.94 per share, while Kroger has forecast $1.90 to $2 per share.

ANALYST TAKE: Analysts generally consider Kroger one of the food sellers best-positioned to weather the recession. But with national unemployment topping 10 percent, household budgets are tight and competition stiff.

"Without meaningful improvement in real wages and job growth, we think the basic underpinnings for pricing power will remain elusive for Kroger and other food retailers heading into 2010," Hapoalim Securities analyst Ajay Jain said in a recent research note. He has a "sell" recommendation on the stock.

However, Jonathan Feeney, food analyst for Janney Montgomery Scott, rates Kroger a "buy," calling it "the best operator" among food retailers and likely to benefit from food price increases he sees ahead.

WHAT'S AHEAD: Analysts will want to hear whether Kroger still thinks sales will pick up in the fourth quarter and price cuts will ease. It is trying to drum up some fourth-quarter holiday shopping business with a gift-card promotion that began on the "Black Friday" after Thanksgiving, offering $10 back on a $100 purchase.

The company will learn this month the results of voting under way among thousands of unionized Colorado grocery workers at Kroger-owned and rival Safeway Inc. stores.

STOCK PERFORMANCE: Kroger shares have been treading water the past two quarters, trading in a very narrow range since beginning the second quarter at $22.22. They closed Thursday at $22.24. They traded as high as $27.65 last December before falling to $19.39 in March.


On the Net: