Kroger Q2 Profit, Same-store Sales Up

CINCINNATI -- Efforts to boost customer loyalty appear to be panning out for the Kroger Co. here, which saw its second quarter profit rise 6 percent, buoyed by a 9.2 percent gain, good for $15.1 billion in sales for the period ended Aug. 12, 2006.

Profits at the nation's largest pure-play grocer reached $209 million, or 29 cents per share for the quarter, vs. $196.5 million, or 27 cents, a year ago, while its revenue rose to $15.14 billion from $13.87 billion.

However, the chain's stock price took a hit yesterday, because investors were disappointed that management didn't up its earnings outlook for the year. Shares closed at $22.75, down 5.52 percent.

Same-store second-quarter sales increased 8 percent with fuel, and 6 percent without, representing Kroger's twelfth consecutive quarter of positive identical-supermarket sales, excluding fuel.

"We are realizing the benefits of our strategy, which includes listening to our customers and associates," said David B. Dillon, Kroger chairman and c.e.o. "We are investing our resources in what they tell us is most important, an approach that builds loyalty to Kroger."

Among the other highlights of Kroger's second quarter: Total capital expenditures tallied $361 million, vs. $272 million a year ago; Kroger repurchased 7.6 million shares of stock at an average price of $21.40 for a total investment of $161.6 million; and at the end of the second quarter, $389.3 million remained under the $500 million stock buyback announced in May 2006.

Net total debt was $6.3 billion, a reduction of $679 million from a year ago. Total debt was $7.0 billion, a reduction of $263.0 million from a year ago. Since January 2000, Kroger has invested $5.8 billion to repurchase shares and to reduce net total debt. Of this total, $3.3 billion was used to repurchase 170.0 million shares at an average price of $19.26 per share. Net total debt was reduced by $2.5 billion.

The company said it anticipates identical-supermarket sales growth of at least 4 percent for the balance of the year, or approximately 4.9 percent for the full year, excluding fuel. This is the second time Kroger has raised its identical-sales guidance for fiscal 2006.

"Our performance through the first half of 2006 indicates we are on track to exceed original identical-sales guidance and meet earnings guidance for the year," said Dillon. "Internal measurements show customers are responding to the investments we have made in service, product selection, and pricing. This focus by our associates on the business strategy enables us to achieve our financial objectives."

Capital expenditures rose by almost 33 percent in the quarter, said Kroger. The chain expects to invest $1.7 billion to $1.9 billion this year on capital projects, including new stores and remodeling. That budget doesn't include possible acquisitions, said executives during a quarterly conference call. The said the chain is keeping an eye out for candidates, at the right price. Potential candidates were not identified.

At the end of the second quarter, Kroger operated 2,477 supermarkets and multidepartment stores in 31 states, under two dozen local banners, including Kroger and Kroger Marketplace, Ralphs, Fred Meyer, Food 4 Less, King Soopers, Smith's and Smith's Marketplace, Fry's and Fry's Marketplace, Dillons, QFC, and City Market. Kroger also operated (either directly or through subsidiaries, franchise agreements, or operating agreements) 773 convenience stores, 418 fine-jewelry stores, 608 supermarket fuel centers, and 42 food-processing plants.
This ad will auto-close in 10 seconds