Kroger first-quarter profit beats analysts' forecasts

CINCINNATI — Kroger Co. said Tuesday that food, gas and drug discounts helped draw budget-strapped consumers for one-stop shopping, and the nation's largest traditional grocer reported profits rose 15 percent in its first quarter.

The results beat Wall Street expectations and helped send Kroger stock up 7 percent in trading Tuesday afternoon.

Kroger earned $386 million, or 58 cents per share, for the quarter ended May 24 compared with a profit of $336.6 million, or 47 cents per share, a year ago. Sales climbed 12 percent to $23.11 billion, from $20.73 billion a year ago.

Analysts polled by Thomson Financial expected a profit of 55 cents a share on revenue of $22.32 billion.

The Cincinnati-based company also raised the lower end of its fiscal-year earnings guidance. It now expects earnings of $1.85 to $1.90 per share, from a previous range of $1.83 to $1.90 per share. Analysts forecast $1.90 per share.

Kroger reported that sales at stores open at least five quarters, considered a key indicator of a retailer's strength, rose 5.8 percent excluding fuel, and 9.2 percent including fuel sales for the quarter. That spurred the company to raise its full-year guidance for same-store sales growth to a range between 4 percent and 5.5 percent, excluding fuel sales, from a previous forecast of growth of 3 percent to 5 percent.

Kroger shares rose $1.90 to $27.90 in afternoon trading Tuesday. The shares have traded between $23.39 and $30.21 in the past year.

The gas, pharmacy and food discounts help draw customers trying to reduce spending on gas by combining trips, and Kroger also says people are eating more meals at home. Sales in its deli-bakery sections were strong, as were those for its own store brands, which are usually priced lower than national brands and provide bigger profit margins for Kroger, the company said.

”Certainly, in this environment, customers are responding to offers that really hit home with them, are important to them,“ David B. Dillon, Kroger chairman and chief executive, told analysts in a conference call.

Grocers face rising costs for dairy, grains and other staples, as well as higher fuel costs to transport goods.

Goldman Sachs analyst John Heinbockel said in a note Tuesday that Kroger's quarter and same-store sales growth numbers were impressive: ”We expected Kroger to deliver a solid, high-quality 1Q which would put to rest food inflation and gas margin fears. ... However, the company fared far better.“

Kroger has stepped up loyalty programs in which frequent shoppers earn gasoline discounts, usually 10 to 15 cents a gallon, at store stations, a program the company recently expanded nationally. Kroger also expanded its discount on generic drugs, offering 90-day prescriptions for $10 and covering more women's health medications in addition to 30-day generic drug supplies for $4.

Kroger was one of the first retailers to lure shoppers with economic stimulus checks by offering 10 percent bonuses on store gift cards. Company officials said they were still evaluating the impact of the program, which began May 2 and continues through July 31.

The company also has promoted discounts such as ”10-for-$10“ specials on canned tuna and other items for regular customers, and Kroger-branded credit card customers can earn store rebate checks.