CHICAGO (Reuters) - Kroger Co (KR.N), the biggest U.S. supermarket operator, said more shoppers are coming to its stores to buy natural and prepared foods as well as gasoline amid a slow economic recovery, sending its shares up 2.5 percent.
The company, whose stores include Ralphs and Food 4 Less, has been outpacing rivals such as Safeway Inc SWY.N and Supervalu Inc (SVU.N) as it works to keep its prices low while other types of stores, such as Target Corp (TGT.N) and Family Dollar Stores Inc FDO.N, have added more food to their store shelves.
While higher costs for groceries and gas are behind some of the sales increase, Kroger also said it gained market share as shoppers visited more often, and held its ground in markets where it competes with Wal-Mart supercenters. Wal-Mart Stores Inc (WMT.N) sells more groceries than any other U.S. retailer.
Still, the economic recovery has been slower and weaker than expected, Chairman and Chief Executive David Dillon said.
“We see some promising signs of improvement, but the recovery remains fragile,” Dillon said during a conference call. “Unemployment is high in most of our markets and food stamp use continues at its peak.”
Meanwhile, the consumers who have managed to keep their well-paying jobs are spending a bit more. Rising sales for premium-priced items like organic food suggest that wealthier shoppers lately are spending more at stores like Kroger and Whole Foods Market Inc WFMI.O.
Kroger’s shares were up 2.3 percent at $23.03 after it also reported a better-than-expected quarterly profit and announced a $1 billion share repurchase plan.
Retail stocks were modestly higher following strong February sales. Still, higher gas and food prices may crimp discretionary purchases in coming months.
Kroger has seen the number of items purchased per visit decline modestly, but shoppers are coming in more often, which could be due to people having smaller budgets when they shop.
“The key thing on supermarkets -- a lot of the bears seem to be expecting a snap-back, or worry about inflation -- is that there’s no pent-up demand for groceries. So what you saw from Kroger and what you saw from Safeway last week and a number of food retailers is that things have gotten a little better and it’s a gradual, slow recovery,” said Walter Stackow, senior research analyst at Manning & Napier, which owns shares of Kroger, Safeway and Dutch grocer Ahold AHLN.AS.
Kroger is raising its prices as vendors raise their prices and it plans to keep doing so, President and COO Rodney McMullen said. He estimated that Kroger’s product costs were 2.3 percent higher in the fourth quarter than a year earlier, driven in part by higher costs in the meat department. Grocery product cost inflation approached 1 percent after six straight quarters of deflation, he said.
Rising sales of gasoline can help drive sales of other goods, as shoppers drive in for gas and stay to buy other items. However, Kroger’s gasoline business margins are expected to fall to about 11.5 cents per gallon this fiscal year, down from their five-year historical average of 12.2 cents per gallon.
Safeway, which also sells gas at some of its grocery stores, said on February 24 that higher gasoline prices would pinch its profit margins this quarter.
Cincinnati-based Kroger earned $278.8 million, or 44 cents per share, in the fourth quarter that ended on January 29, up from $255.4 million, or 39 cents per share, a year earlier.
Excluding a goodwill impairment charge, Kroger earned 46 cents a share, topping the analysts’ average forecast of 44 cents, according to Thomson Reuters I/B/E/S.
Total sales, including fuel, rose 7.4 percent to $19.9 billion, ahead of the $19.38 billion analysts had expected.
Closely watched identical-supermarket sales, without fuel, rose 3.8 percent. Kroger’s identical-store sales include supermarkets open without expansion or relocation for five full quarters.
Kroger forecast earnings of $1.80 to $1.92 per share for the current fiscal year, up from $1.74 last year. Analysts currently expect it to earn $1.92 per share.
The company forecast identical-supermarket sales growth, excluding fuel, of 3 percent to 4 percent for the year.
Kroger is now authorized to repurchase another $1 billion worth of its shares. It has repurchased $6.5 billion worth of shares since January 2000.
Reporting by Jessica Wohl in Chicago; Additional reporting by Lisa Baertlein in Los Angeles and Ben Klayman in Detroit, editing by Lisa Von Ahn, Maureen Bavdek and Gunna Dickson