CINCINNATI — The economic recovery that had been expected for this year may have stagnated, David B. Dillon, chairman and chief executive officer of Kroger Co.  here, told analysts last week.
With Kroger predicting last week that inflation could rise 3% to 4% for the year — rather than the 1% to 2% the company had previously predicted — “we are looking for people to trade down or buy fewer discretionary items if things get a little tight,” Dillon said.
“As inflation gets stronger, we think at some point people are going to stop having enough money to spend on food. But at this point it's still early.
“What we've seen recently is things have stagnated a little bit in the overall economy and behavior has plateaued at that point, so the overall recovery we had hoped for may not be quite what we had hoped it would be.
“But our tonnage is still solid, and what we are seeing are only modest changes in shopping trends.”
Michael Schlotman, senior vice president and chief financial officer, said inflation is being driven by meat, seafood and produce — “with up to double-digit inflation in some of those categories,” he noted — “and inflation in the grocery category, which is half our sales, was up just over 2.1% without milk.”
Net income for the first quarter, which ended May 21, increased 15.7% to $432.3 million, while total sales jumped 11% to $27.5 billion and sales excluding fuel climbed 4.8% to $20.8 billion. Identical-store sales, excluding fuel, rose 4.6% — the 30th consecutive quarter of increased ID sales, the company pointed out.
Dillon said sales improved gradually through the quarter and have continued to improve through the first few weeks of the second quarter.
Kroger updated its financial guidance for the year, with earnings expected to fall between $1.85 and $1.95 per share, compared with previous guidance of $1.80 to $1.92 per share, and anticipated ID sales growth, excluding fuel, of 3.5% to 4.5%, compared with previous guidance of 3% to 4%.
Commenting on the ongoing labor talks in Southern California, Dillon said, “Both sides in the negotiations are showing the patience needed to solve the problems at the bargaining table, so we are really very hopeful the process will eventually result in an agreement.
“It is worth noting that our pension and health care costs attributable to labor contracts in Southern California are extraordinarily high, making those negotiations particularly challenging.
“The labor and benefit costs in that market have had an impact on results, and we are not enjoying the same level of success there as we have in the rest of the company.”
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