Kroger lowers earnings expectations

Kroger Co. said Friday that its profit during the fiscal second quarter ended Aug. 13 fell 11.5% due to charges it took as part of a restructuring of employee pension plans.

Without those charges, earnings would have increased 4.8% during the quarter.

Kroger reported second-quarter net income of $383 million, or 40 cents per share, compared with $433 million, or 44 cents per share, in the same quarter a year ago.

Earnings, adjusted for non-recurring costs, were 47 cents per share, beating Wall Street expectations of 45 cents per share.

Revenue rose 4% to $26.57 billion in the period, which came in slightly under Wall Street forecasts. Five analysts surveyed by Zacks expected $26.78 billion.

Kroger said its second quarter same-store supermarket sales grew 1.7%.

Kroger, the world's third-largest retailer behind Wal-Mart Stores Inc. and Costco Wholesale Corp., is the grocery market share leader in Wisconsin by virtue of its 2015 purchase of Milwaukee-based Roundy's Inc. Kroger holds about a third of the grocery market in Wisconsin and its stores cover the state from Eagle River in the Northwoods to Kenosha near the border with Illinois.

In Wisconsin, the company operates under the Pick 'n Save, Metro Market and Copps banners in cities throughout the state. The company employs 13,800 people in Wisconsin.

Its stores in the Milwaukee metro compete in what some retail industry observers say is among the most competitive grocery markets in the United States.

In a conference call with investment analysts, Mike Schlotman, Kroger executive vice president and chief financial officer, said the company's "integration with Roundy’s continues to be on plan. ... We are pleased with the early results of our Roundy’s investments in Wisconsin and we remain excited about this opportunity."

Nationwide, Kroger operates  2,781 grocery stores in 35 states under nearly two dozen banners, including the Mariano's banner in northern Illinois. Kroger also operates 785 convenience stores under six banners in 19 states.

In reporting earnings, executives at Cincinnati-based Kroger said falling food prices are weighing down sales results. Kroger said it was hurt by falling prices of eggs, meat and other products, forcing it to lower its earnings guidance for the year.

Kroger lowered its earnings expectations to a range of $2.03 to $2.13 from a range of $2.19 to $2.28 for the year. The company also cut back its capital investment plan to a range of $3.6 billion to $3.9 billion from a range of $4.1 billion to $4.4 billion.

"We are focused on long-term performance over a three- to five-year horizon. We have the right strategy, the right people and the financial flexibility to execute our strategy," Kroger CEO Rodney McMullen said in a statement announcing earnings.

He also credited the company's employees for executing its strategy "in a deflationary environment."

Falling prices reduce the sales dollars a grocery store generates while fixed costs such as labor, utilities and rent remain the same or increase.

"It cuts into their margin because they have less top line sales and still a decent amount of fixed or variable expenses," said Rick Shea, president of Shea Food Consultants, a suburban Minneapolis-St. Paul grocery and food marketing consultancy.

Shea said the falling prices are likely to continue but right now don't appear to be a long-term phenomenon.

"The industry goes through ebbs and flows and cycles," he said. "It will probably correct itself in another six to nine months.

"It's mostly grains and dairy and proteins right now causing the food deflation," Shea added.

Kroger Chief Financial Officer Mike Schlotman told business news channel CNBC Friday that the drop in prices for eggs, meat and milk have affected the price of ice cream and other products that use those ingredients.

The Cincinnati Enquirer and Associated Press contributed to this report. 

USA TODAY


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