Kroger Sees Market Share Grow for Third Year in a Row

A sharp focus on serving customer needs drove a strong fiscal fourth quarter performance for The Kroger Co., even in the face of "product cost inflation across many core grocery and perishable categories at levels not seen in several years," the company said during an earnings conference call yesterday.

The Cincinnati-based chain's sales increased 2.2 percent to $17.2 billion for the quarter ended February 2, 2008. Adjusting for the extra week in the fourth quarter of the previous year, total sales increased 10.2 percent, the chain said. Meanwhile, product cost inflation during the fourth quarter versus last year was 3.8 percent excluding fuel, according to Kroger's estimates.

Identical supermarket sales increased 8.2 percent with fuel and 5.3 percent without fuel, based on the same 12-week period in both years, the company said.

"As Kroger's strong fourth quarter results show, we continue to drive solid identical sales growth by improving service, value, product quality, and selection for our customers," said David B. Dillon, Kroger chairman and c.e.o. "During the quarter, we continued to invest in lower prices for our customers, providing meaningful savings for them in this uncertain economic environment."

Indeed, it was the economic environment that resulted in a drop in fourth quarter profits, which totaled $322.9 million, or 48 cents per share, compared to last year's $384.8 million, or 54 cents per share. According to Kroger, the LIFO charge in the fourth quarter was 5 cents per share, resulting from higher than expected inflation - 2 cents per share more than it anticipated at the end of the third quarter.

Results from the fourth quarter 2006 also included a three cents-per-share benefit from adjustments to certain deferred tax balances and an estimated seven cents-per-share from an extra week.

For the full 2007 fiscal year, sales increased 6.2 percent to $70.2 billion. Adjusting for the extra week in 2006, sales increased 8.2 percent. Identical store sales increased 6.9 percent with fuel and 5.3 percent without fuel, based on the same 52-week period in both years.

Net earnings for fiscal 2007 were $1.18 billion, or $1.69 per share, which equates to 15 percent growth after adjusting for the extra week in 2006.

Along with this growth Kroger also saw gains in market share in 37 of its 44 major markets, based on the company's calculations. These increases are on top of strong market share gains in 2005 and 2006.

"Our performance last year and our three consecutive years of increases in market share show that Kroger's strategy is working as we continue to deliver value to both our customers and our shareholders," said Dillon.

Even with these strong numbers, Dillon admitted there is still room for growth. "While these latest market share numbers are impressive, we know there is more opportunity out there for our company," he said. "Even with Kroger's strong share in our 44 major markets, approximately 46 percent of the share in those markets continues to be held by competitors without our economies of scale. We estimate that their share as declined nearly 4 percent over the last four years."

For fiscal 2008, Kroger anticipates earnings of $1.83 - $1.90 per share, growth that will be driven by strong identical store sales - which it expects to be in the 3 to 5 percent range -- an improvement in non-fuel operating margins, and fewer shares outstanding.

"Kroger's fourth quarter and fiscal year results can be tied directly to the efforts of our associates in every aspect of our business," said Dillon. "The contribution of all of our associates is fundamental to our success in 2008 as we continue to execute our Customer 1st strategy. Kroger's business model and the diversity of our product offerings are well-suited for what continues to be a challenging economic and competitive environment."

Kroger operates 2,486 supermarkets and multi-department stores in 31 states under two dozen local banners including Kroger, Ralphs, Fred Meyer, Food 4 Less, Fry's, King Soopers, Smith's, Dillons, QFC, and City Market. It also operates 782 convenience stores, 394 fine jewelry stores, and 696 supermarket fuel centers.
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