Kroger 1Q sales up 11.5%
CINCINNATI Kroger reported total sales increased 11.5% to $23.1 billion for the first quarter ended May 24. Identical-supermarket sales increased 9.2% with fuel and 5.8% without fuel.
Net earnings in the first quarter totaled $386 million, or 58 cents per diluted share. Net earnings in the same period last year were $336.6 million, or 47 cents per diluted share.
“Our strategy positions us well to deliver consistent results and make investments for our future. Kroger continues to help customers stretch their budgets in a number of ways, including lower prices and our expanded generic drug and gas discount programs,” said David Dillon, Kroger chairman and ceo. “Through these kinds of price reductions, our customers are saving $1 billion annually.”
Based on the strength of its first quarter results, the company raised its identical sales and earnings guidance for fiscal 2008. Kroger now expects identical sales growth of 4% to 5.5%, excluding fuel, for fiscal 2008. Previous guidance was 3% to 5%.
For earnings, Kroger now anticipates earnings of $1.85 to $1.90 per diluted share. The company’s original guidance was $1.83 to $1.90 per diluted share.
Costco leads way in successful sector
There were times when Costco was attacked, for not opening clubs quickly enough, for not cutting labor costs, for not making assortment changes. But times have changed and Costco is getting its share of hard-won appreciation.
Characterizing it as a share only just scratches the surface. The entire warehouse club sector has proven the most resilient in retail in the current difficult economic times in the United States. Sam’s Club and BJ’s, too, have proven resilient, and consumers, at least those willing to spend money, have demonstrated a preference for the warehouse club format recently.
Although BJ’s and Sam’s beat Costco’s adjusted comparable-store sales at 5.7% and 4.7%, respectively, versus a little over 4%, Costco’s total sales advanced 13% versus 12.3% at BJ’s and 7.6% at Sam’s. On a dollar basis, Costco’s net sales were up about $1.92 billion, while BJ’s were up about $248 million and Sam’s about $789 million.
In terms of operating income—Sam’s doesn’t break out earnings—Costco was up 37.3% versus 25.5% at BJ’s and 4.3% at Sam’s. In dollar terms, operating income at Costco gained $109.4 million versus $5.9 million at BJ’s and $16 million at Sam’s. The dollar figures particularly demonstrate Costco’s sector leadership.
As might be expected during a period when people are cautious about spending, food and consumables categories are having a big impact on Costco’s results. In a third-quarter conference call on May 29, evp and cfo Richard Galanti noted, “The basic categories of food and sundries…is about half of our sales, and fresh foods is about 13% of our sales. So we’ll call it roughly 60% of our sales. Those are the categories that are having comp numbers greater than the company overall.”
Only tobacco in the food and sundries category had comps that tracked negative. “Otherwise, all subcategories within food and sundries were up year-over-year. On average mid-to high-single-digits,” Galanti said, adding, “Fresh foods, as I mentioned, continues to be good. All subcategories within fresh foods are just fine.”
Categories such as food and television may get a lot of attention at Costco, but food provides particular opportunities, in this economy and in other circumstances in the future. “Keep in mind your most leveragable margin opportunities are in fresh foods,” said Galanti. “In your bakery, your raw materials are a fraction of the total sales dollar. Your labor and electricity and depreciation are another fraction. If you sell one more dozen of something, you make a bunch of money on it.
“Given that many of our—as an example, bakeries—are higher volume to start with, as people are in theory coming to us more because of food or we’re adding members because of food, I think that you probably get the biggest bang for your buck on those members,” he said.
Recent success at Costco is the result of no departure from the basic formula. While there has been refinement, Costco’s insistence on playing from strength has helped it advance, even as the economy slows.
Robert Plaza, an analyst at Zacks Investment Research, said many observers have knocked Costco in the past for not managing quarter to quarter and now are confronted with their own shortsightedness. “About one quarter a year, Costco will produce comp-store sales that disappoint the market, but they know their knitting,” he said. “They’re managing for five and 10 years down road. Now that market has come to them.”
Trend Tracker: Personal Postage
Consumers have a new way to further personalize greeting cards thanks to licensed postage from Seattle-based Premier Postage.
Earlier this year, the company executed an agreement with the Major League Baseball Players Association to produce a line of stamps featuring 36 of today’s most popular players. Licensing agreements also exist with the Daytona 500 (pictured), Indianapolis Motor Speedway, Orange County Choppers and Professional Bull Riders.
Postage is a relatively new category for licensing. Premier works with Pitney Bowes, an authorized member of the USPS-approved Customized Postage Program. A sheet of six stamps costs $9.99.