Kroger Co. raised its sales and earnings forecasts as the largest U.S. traditional supermarket chain benefited from private-label products and increased customer visits, though rising food costs crimped profit.
Identical supermarket sales, excluding fuel, rose 5% in the quarter ending Nov. 5 compared with the same period last year, Kroger said in a Dec. 1 statement. The Cincinnati-based company said it expects sales to increase 4.5% to 5% for the full fiscal year, compared to a previous outlook for 4% to 5% growth.
Kroger’s results illustrate improvement among the large grocery chains that struggled to emerge from the 2008-09 recession and faced stiff price competition from discounters such as Wal-Mart Stores for budget-strapped consumers.
In Kroger’s previous quarter, the volume of products sold was comparable to year-ago levels, but dollar sales grew because of higher prices for some of the products on its shelves, analysts said. Additionally, accelerating food inflation pushed many customers toward cheaper private-label items, a strong area for Kroger.
Reducing prices on some fresh produce items last year helped increase Kroger’s sales, company executives said previously.
“Clearly, customers have responded positively to Kroger’s pricing actions,” Janney Capital Markets analyst Jonathan Feeney said in a Dec. 1 report.
He expressed optimism on Kroger’s earnings outlook, “even in the context of a really tough marketplace with inflation and a poor economy.”
“Kroger’s best-in-class private-label program is also having a clear impact,” Feeney added.
The company’s net income during the quarter still fell 3.1% as costs rose. Inflation and the slow economy “had a more negative effect on the overall operating environment than we had originally expected,” David B. Dillon, Kroger’s chief executive, said during a conference call after the release of results.
But the company “successfully navigated these influences by following our business strategy and making tactical adjustments as needed over the course of the year,” Dillon said.
Kroger’s estimated product cost inflation, excluding fuel, was about 6% during the quarter, which the grocer believes “accurately reflects what the consumer is, in fact, experiencing,” company executives said during the call.
Food at home prices, which reflect what consumers pay at the supermarket, are expected to increase 4% to 5% this year after rising just 0.3% in 2010, according to a U.S. Department of Agriculture forecast.