Kroger reported a higher net income for its fiscal second-quarter as the nation's largest traditional supermarket operator booked lower charges and worked to build shopper loyalty with improved offerings.
Kroger reported a higher net income for its fiscal second-quarter as the nation’s largest traditional supermarket operator booked lower charges and worked to build shopper loyalty with improved offerings.
The Cincinnati-based company lifted the low end of its fiscal 2013 outlook for a key sales measurement. Shares edged higher in Thursday morning trading.
Kroger Co., which owns also Ralphs, Fry’s and other chains, said sales rose 3.3 percent at stores open at least a year during the quarter. The rise was helped by an increase in the number of “loyal” households, which Kroger defines using factors such as how much they spend and how often they visit.
Looking ahead, Kroger now expects the sales figure to increase betwee 3 percent and 3.5 percent for fiscal 2013, excluding fuel. Its previous projection was for an increase in 2.5 to 3.5 percent. Wall Street was forecasting a 3.3 percent gain.
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The metric is an important gauge because it strips out the impact of newly opened and closed locations.
Kroger and other supermarket companies are trying to adapt to a shifting industry. Shoppers are increasingly getting groceries at big-box retailers like Target, drugstores and dollar stores that have expanded their food sections. Specialty chains such as Whole Foods are playing a greater role, too. The organic grocer said in July that its sales rose 7.5 percent at locations open at least a year in its most recent quarter.
To keep pace, Kroger has worked on shortening checkout wait times, expanded its store-brand lineup and invested in making its loyalty program more sophisticated. The company also recently bought Harris Teeter, a regional grocer that has locations in eight states. The slightly more upscale supermarkets tend to be more profitable than traditional supermarkets, and Kroger has said it would learn from some of Harris Teeter’s practices.
For example, Harris Teeter offers a “click and collect” service in about half its stores that lets people shop online then pick up their groceries at the front of the store. Kroger is looking to expand that service.
During a conference call with analysts on Thursday, executives also sought to assuage concerns about the impact of regulatory changes on its business. CEO Dave Dillon said that the potential cut to the food stamp program being considered by lawmakers shouldn’t affect sales. He noted that sales have been up despite a recent softening in food stamps, and that households that use food stamps have their own money to spend as well.
Kroger is also in the midst of negotiating contracts with its many unions. Earlier this summer, one of its unions in Indiana agreed to a contract that would no longer provide health care coverage to spouses. A Kroger representative noted that the company is providing employees whose spouses will move to either their own employer-based plans or the new health care exchanges with $1,000 to assist in the transition.
The company said it’s still spending about $1.5 billion on health care each year, and that the figure is expected to increase.
For the quarter ended Aug. 17, Kroger earned $317 million, or 60 cents per share. That compared with $279 million, or 51 cents per share, in the 2012 second quarter.
The results were just above the 59 cents per share that analysts polled by FactSet expected, on average.
The latest quarter included an accounting-related charge of $13 million, compared with a $35 million charge in the prior-year period.
Revenue rose 5 percent to $22.72 billion from $21.73 billion, topping Wall Street’s estimate of $22.69 billion.
Kroger still expects full-year earnings in a range of $2.73 to $2.80 per share. Analysts predict earnings of $2.80 per share.
The stock added $1.02, or nearly 3 percent, to $38.69. Shares have traded between $22.90 and $39.98 in the past 52 weeks, and are up about 45 percent since the start of the year.