Tuesday, Kroger Co. (KR), one of the nation's largest retail grocery chains, posted lower profit and sales for the second quarter, amid increasing rate of out-of-work professionals and deteriorating economic conditions. Per share earnings fell from last year and missed the Street view. Further, the company slashed its earnings forecast for fiscal 2009, while confirming projections for identical supermarket sales growth.
Q2 Results
For the second quarter, the supermarket chain posted net income attributable to Kroger of $254.4 million or $0.39 per share, compared with $276.5 million or $0.42 per share in the year-ago quarter.
On average, 16 analysts polled by Thomson Reuters expected the company to post earnings of $0.44 per share. Analysts' estimates typically exclude special items.
Quarterly sales, including fuel, decreased to $17.7 billion from the previous year's $18.1 billion, and fell shy of thirteen Wall Street analysts' consensus revenue estimate of $18.16 billion. Excluding fuel sales, total sales grew 3.5% over last year.
Other Metrics
Operating profit for the second quarter dropped to $499.1 million, or 2.81% of total sales, from $546.3 million, or 3.02% of total sales, in the prior-year quarter. Operating, general and administrative expenses were $3.09 billion or 17.41% of total sales, up from $3.00 billion or 16.60% of total sales, in the year-earlier quarter.
The Cincinnati, Ohio-based Kroger, which also operates the Ralphs, Fred Meyer, Food 4 Less, Fry's, King Soopers, Smith's, and Dillons brands, said identical supermarket sales advanced 2.6% without fuel in the latest quarter. Including fuel centers, identical supermarket sales declined 1.6% from the previous year.
Comparable supermarket sales, excluding fuel centers, improved 3.0%, while comparable supermarket sales, including fuel centers, edged down 1.3% from last year.
Kroger defines a supermarket as identical when it has been open without expansion or relocation for five full quarters, and defines a supermarket as comparable when it has been open for five full quarters, including expansions and relocations.
During the quarter, the company's First-In First-Out or FIFO gross margin rose 59 basis points to 23.11% from last year. Excluding retail fuel operations, FIFO gross margin decreased 60 basis points and supermarket selling gross margin on non-fuel sales fell 88 basis points.
The company recorded a $14.7 million Last-In First-Out or LIFO charge during the first quarter, down $31.5 million from last year. Excluding retail fuel sales, the LIFO charge declined 21 basis points as a percent of sales compared to the prior year.
Year-To-Date Highlights
Net income attributable to Kroger for the six-month period was $689.5 million or $1.05 per share, compared with $662.5 million or $1.00 per share in the prior-year period.
Year-to-date sales declined to $40.5 billion from $41.2 billion reported in the corresponding period of the previous year. Excluding fuel sales, total sales increased 3.7% over the prior year. For the same period, identical supermarket sales, excluding fuel, rose 2.9%. Future In Focus
Looking forward to fiscal 2009, the company currently projects earnings to range between $1.90 and $2.00 per share, down from the previously communicated earnings outlook range of $2.00 - $2.05 per share. Wall Street analysts have a consensus earnings estimate of $2.05 per share for the year.
This reduced guidance reflects changes in customer behavior and other factors related to the economic environment that Kroger expects to influence its business for the remainder of the year.
Further, Kroger confirmed its expectations for full-year identical supermarket sales growth of 3% - 4%, without fuel, for the full year. This guidance assumes product costs for the remainder of fiscal 2009 are consistent with or slightly lower than they were in the second half of fiscal 2008.
Peer Review
Among other players in the field, the Pleasanton, California-based Safeway Inc. (SWY) posted higher profit for the second quarter that totaled $238.6 million or $0.57 per share, compared to $234.3 million or $0.53 per share earned a year earlier, helped by a tax benefit from the resolution of a tax matter. Meanwhile, quarterly sales declined 6.5% to $9.46 billion from $10.1 billion in the comparable quarter of the prior year.
Another peer, the Eden Prairie, Minnesota-based Supervalu Inc. (SVU) witnessed a downswing in first-quarter profit that amounted to $113 million or $0.53 per share, versus $162 million or $0.76 per share in the previous year, negatively impacted by lower sales amid the ongoing difficult economic environment. Net sales dropped to $12.72 billion from $13.35 billion generated in the corresponding quarter of the previous year.
Supervalu lowered its fiscal 2010 GAAP earnings outlook to a range of $1.95 - $2.15 per share from prior range of $2.44 - $2.59 per share. Excluding costs related to store closures, non-GAAP earnings for the year are currently projected to be in the range of $2.01 - $2.21 per share, lower than the previously issued forecast of $2.50 - $2.65 per share. Net sales for the 52-week fiscal year are estimated to be about $42 billion.
Retail giant Wal-Mart Stores reported second-quarter net income of $3.442 billion, compared to $3.449 billion in the prior-year quarter. On a per share basis, earnings grew to $0.88 from $0.87 in the previous year on lower number of shares outstanding. Total revenues for the quarter, including membership and other income, declined to $100.91 billion from $102.34 billion a year ago.
In addition, Wal-Mart said it expects third-quarter earnings from continuing operations to range between $0.78 and $0.82 per share. For fiscal year 2010, Wal-Mart revised its guidance and now expects earnings from continuing operations in the range of $3.50 - $3.60 per share, compared to the prior range of $3.45 - $3.60 per share.
Stock Performance
Kroger shares, which have been trading between $19.39 and $29.59 in the past 52 weeks, is currently trading at $20.35, down $1.76 or 7.96%, on a volume of 4.32 million shares.
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