CINCINNATI — A combination of more frequent shopping trips and rebounding prices helped Kroger Co. here post improvements in sales, market share and earnings in the fiscal fourth quarter, company officials said last week.
Net earnings of $278.8 million, or 44 cents per share, improved 9% as sales jumped 7.4% to $19.9 billion for the period, which ended Jan. 29. Identical-store sales excluding fuel improved by 3.8% in the quarter as each of Kroger's 18 retail divisions saw positive sales results, and each supermarket department saw sales increases, including general merchandise and drugs — categories that had softened in the height of the recession.
David Dillon, Kroger's chairman and chief executive officer, said he was “more upbeat” than he was when reviewing the company's third-quarter results in December. This, he said, reflected Kroger's improvement in an environment that is recovering more slowly than expected.
“We see some promising signs of improvement, but the recovery remains fragile,” he said. “Unemployment is high in most of our markets and food stamp use continues at its peak.”
However, these trends played to Kroger's strength, as the company drew more shoppers overall as well as more shopping trips from its loyal shoppers. Combined with product price inflation that Kroger officials estimated at 2.3% during the quarter, this drove identical-store sales gains. Kroger's biggest sales gains came in natural foods, deli/bakery, produce and meat.
The grocery department saw around 1% inflation during the quarter — its first increase following six quarters of deflation, according to Rodney McMullen, Kroger's president and chief operating officer. “We are passing along product cost increases from national brand suppliers in grocery today and we plan to continue to do so,” he said, noting that Kroger would push its own-brand products as an alternative for shoppers whose habits could change with inflation.
“If there is any consistent in our industry it is change,” McMullen said. “Changing retail formats and changing customer behavior. Retailers that become more relevant with customers will survive and thrive in the long run.”
Kroger said operating margin excluding fuel and goodwill charges improved by 31 basis points as compared to the same period a year ago. But for the fiscal year, margins of 2.65% were 22 basis points lower than 2009. Officials said they expected 2011 margin rate would be flat with 2010.
“Clearly we recognize the need to expand our operating profit margin over time, so we are not satisfied with, do not believe that today's level is a permanent position,” McMullen said. “And that we think that that opportunity to expand will improve as the economy and the operating environment improves.
For the fiscal year, Kroger reported net profits of $1.1 billion on sales of $82.2 million. Sales improved by 7.1% overall and non-fuel ID sales improved by 2.8%.