‘Difficult Operating Environment’ Causes Kroger Q4 Net Earnings to Plunge

The Kroger Co. yesterday posted an increase of total sales, including fuel, of 7.2 percent to $18.6 billion in the fourth quarter of fiscal 2009 ended Jan. 30, 2010, vs. $17.3 billion for the same period last year. Excluding fuel sales, fourth-quarter total sales grew 2.0 percent and identical supermarket sales edged up 1.2 percent over the year-ago period. The still-recovering economy was tough on the quarter’s net earnings, though, which came to $255.4 million, or 39 cents per diluted share, compared with $349.2 million, or 53 cents per diluted share, last year.

“The Kroger team delivered solid fourth-quarter results for both our customers and our shareholders during what continues to be a difficult operating environment,” said chairman and CEO David B. Dillon. “We are strengthening Kroger's overall competitive position by increasing the number of households that are loyal to Kroger and earning a greater share of their business.”

Capital investment, excluding acquisitions and purchases of leased facilities, was $458.9 million for the fourth quarter, vs. $434.0 million in the year-ago period. Net total debt was $7.5 billion, a drop of $217.5 million from a year ago.

For fiscal year 2009, total sales rose 0.8 percent to $76.7 billion, compared with fiscal 2008. Excluding fuel sales, total sales for fiscal 2009 grew 2.9 percent, and identical supermarket sales went up 2.1 percent, vs. the prior fiscal year. Net earnings for fiscal 2009 amounted to $70.0 million, or 11 cents per diluted share, compared with 1.25 billion, or $1.89 per diluted share, in fiscal 2008.

“Throughout 2009, Kroger successfully achieved identical sales growth, one of the key objectives of our business model,” noted Dillon. “Through the efforts of all of our associates, we continue to widen the gap between Kroger’s identical-sales growth trends and those of most of our competitors. We believe this has extremely positive implications for our associates, customers and shareholders both now and as we grow our business.”

For fiscal year 2010, the grocer expects identical supermarket sales growth, excluding fuel, of 2 percent to 3 percent, along with net earnings in the range of $1.60 to $1.80 per diluted share.

According to Kroger, several factors that affected its business in the second half of 2009 will continue at least through the first half of 2010, among them inflation or deflation in product and operating costs, the competitive retail environment, fluctuating fuel margins, and the slow pace of the economic recovery.

Still, Dillon was positive in his assessment of future growth for the company “During a year that proved to be extremely trying, Kroger successfully achieved positive identical-sales growth, increased the number of households loyal to Kroger stores, and generated strong tonnage growth,” he pointed out. “In addition, we reduced debt, increased the dividend we pay shareholders and prudently invested capital to keep our stores fresh and innovative. Kroger’s strategy generates value in good times and bad. We believe Kroger will continue to be in the best position to deliver shareholder value now and as the economy improves.”

Cincinnati-based Kroger employs over 334,000 associates in 2,468 supermarkets and multi-department stores in 31 states under two dozen local banner names, including Kroger, City Market, Dillons, Jay C, Food 4 Less, Fred Meyer, Fry’s, King Soopers, QFC, Ralphs and Smith’s. The Company also operates 777 convenience stores, 374 fine jewelry stores, 893 supermarket fuel centers and 40 food-processing plants in the United States.
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