Kroger Q4 profit falls 27%
Cincinnati The Kroger Co. reported that its profit fell 27% in the fourth quarter, even as sales rose with a boost from the grocer’s gasoline incentives for regular customers.
The chain Tuesday reported profit of $255.4 million down from $349.2 million a year ago. Sales rose 7% to $18.6 billion. Excluding fuel, sales were up 2%.
Kroger had seen earnings growth early in the recession, as consumers cut back on restaurants and bought more store-prepared food and groceries to eat at home. Kroger also has seen good growth for its store-brand items, usually priced below national brands.
But competition has intensified, driving down prices and drawing bargain-hunting shoppers to warehouse club chains such as Costco Wholesale Corp. Kroger has stepped up promotions and incentives.
The company said sales at stores open at least 15 months rose only 1.2% without fuel sales in the fourth quarter.
“We are strengthening Kroger’s overall competitive position by increasing the number of households that are loyal to Kroger and earning a greater share of their business,” said David B. Dillon, Kroger’s chairman and CEO.
Kroger sells fuel at about a third of its grocery stories and is trying out a link of its customer loyalty discounts with Shell Oil stations in five markets in California, Ohio and Tennessee to expand its fuel reach.
Kroger has nearly 2,500 grocery stores in 31 states that include local banners such as Ralphs, Fred Meyer, Food 4 Less, Fry’s, King Soopers, Smith’s, Dillons, QFC and City Market.
For the year, total sales increased nearly 1%, $76.7 billion, with same-store sales up 2.1% for the year.
Profits for the year were $70 million, hurt by a $1.05 billion charge to write down in the third quarter on the value of its Ralphs division because of the battered economy in California. Kroger said otherwise, earnings for the year would have been $1.12 billion.
A perfect storm for shoplifters
Retailers are fortunate the majority of customers are honest and choose to pay for the items they need and want. However, even the most well intentioned shoppers can succumb to the allure of theft when their moral compass is exposed to the polarizing forces of a recessionary economy and a retail environment where the perceived risk of apprehension is low due to thinly staffed stores. As a result, retail theft characterized as amateur or opportunistic is on the rise, according to 78% of retailers responding to a survey conducted by the Retail Industry Leaders Association (RILA). While amateur and opportunistic thieves are more active, all types of theft have increased, with 74% of retailers reporting seeing an increase of stolen items found in online marketplaces, and 65% reporting increased theft by organized groups.
A rebound awaits in key categories
Target is the beneficiary of a perceived quality gap relative to Walmart, and that typically helps it in head-to-head comparisons where such categories as apparel and home are concerned. Unfortunately, consumer decision-making is seldom so linear, and Target has a slew of other retailers against whom it must compete, and recent sales results suggest it has work to do. Target has reported weak (flat or declining) results for its apparel and home categories and did so again in February. However, such companies as TJX, Ross and Kohl’s, which appeal to the same value-oriented shoppers as Target, produced solid gains. TJX said its February same-store sales increased 10%, Ross produced an 11% increase and Kohl’s was up 3.7%. Also producing gains were such competitors as Nordstrom, Macy’s and JCPenney, which serve customers squarely in the crosshairs of Target’s “expect more, pay less” value proposition. Macy’s reported a better-than-expected increase of 3.7%, and Nordstrom topped analysts’ views with a 10.3% increase. JCPenney’s same-store sales rose 1.2%, which was also better than expected.