* Third-quarter net income up more than 60 percent
* Total sales top analysts' estimate
* Food inflation flattened more than expected
By Lisa Baertlein
Nov 29 No. 1 U.S. supermarket operator Kroger Co
reported better-than-expected quarterly profit on
Thursday as easing food prices prompted more shopper purchases
and raised its full-year earnings forecast.
Shares of Kroger closed up 4.7 percent at $26.25 on the New
York Stock Exchange.
Muted food price increases, due in part to more promotions
by food companies, prompted a rise in traffic and sparked the
biggest quarterly increase in Kroger's unit movement - a measure
of total items sold by grocery stores - since the second quarter
"Customers continued to visit our stores more frequently and
buy more on a monthly basis. Customers also purchased more items
on each trip, a welcome change from what we've seen for the last
several quarters," Rodney McMullen, Kroger's president and chief
operating officer, told analysts on a conference call.
Executives at Kroger - which is known for trying to hold
down prices - said the trend in the latest quarter suggested
shoppers have a bit more money to spend or are a little less
tentative about spending.
Analysts said Kroger put up healthy numbers in the latest
quarter but they remain cautious on the major grocers, - Kroger,
Safeway Inc and Supervalu Inc, over the longer
"They're good on the surface, but I would be reticent to say
that this is the new trend on a sustainable basis," Susquehanna
Financial Group grocery analyst Bob Summers said of Kroger's
results, which were bolstered by share buybacks, cost
reductions, gasoline sales and other items that are not core to
its grocery business.
"We still believe that over time, more conventional
retailers like Kroger, Safeway and Supervalu will lose share of
food sales" to retailers ranging from big-box discounters to
dollar stores, J.P. Morgan analyst Ken Goldman said in a client
PROFIT RISES, SOME FOOD PRICES FALL
The Cincinnati-based grocer, which operates the Kroger,
Ralphs, Smith's and Food 4 Less chains, said net income jumped
almost 62 percent to $316.5 million, or 60 cents per share, for
the third quarter that ended Nov. 3.
Excluding benefits from a settlement with credit card
companies and a reduction in its obligation to fund a union
pension fund, Kroger earned 46 cents a share in the latest
quarter, topping analysts' average estimate by 3 cents per
share, according to Thomson Reuters I/B/E/S.
Total sales, including fuel, increased about 6 percent to
$21.81 billion, besting analysts' estimate of $21.65 billion.
Charges also were down in the latest quarter.
Operating, general and administrative costs plus rent and
depreciation, excluding retail fuel operations and the two
adjustment items, declined 21 basis points as a percent of
Kroger's LIFO (last-in, first-out) inventory accounting
charge was $15.5 million in the latest quarter, versus $61.6
million a year earlier, due to easing inflation.
Executives estimated the rate of inflation declined to 1.4
percent, excluding fuel. They reported inflation in every store
department, except produce and seafood. Both of those were
The impact of the worst U.S. drought in more than half a
century appears to have been muted this year but is expected to
send food costs higher in 2013.
The company - whose rivals also include discounter Wal-Mart
Stores Inc and Target Corp - raised its
full-year earnings outlook, excluding the two special items, to
a range of $2.44 to $2.46 per share. It had forecast $2.35 to
In 2013, Kroger plans to build, expand or relocate 50
supermarkets, compared with 40 expected this year, McMullen