Kroger Identical Supermarket Sales Up 2.7% in Q2

Net earnings for the second quarter totaled $261.6 million, or $0.41 per diluted share. Net earnings in the same period last year were $254.4 million, or $0.39 per diluted share.

Sep 15 2010 --- The Kroger Co. has reported total sales, which include fuel, increased 6.0% to $18.8 billion in the second quarter of fiscal 2010 compared with $17.7 billion for the same period last year. Excluding fuel sales, total sales increased 3.3% in the second quarter, which ended August 14, 2010, over the same period last year. Identical supermarket sales, without fuel, increased 2.7% in the second quarter over the same period last year.

Net earnings for the second quarter totaled $261.6 million, or $0.41 per diluted share. Net earnings in the same period last year were $254.4 million, or $0.39 per diluted share.

“Kroger’s sales have remained solid in the face of competitive and economic challenges because of the strong credibility we have with our shoppers. Our team understands the importance of finding ways to make each customer visit better than the last one, resulting in consistent positive identical supermarket sales growth,” said David B. Dillon, Kroger’s chairman and chief executive officer. “We continue to build momentum through our Customer 1st strategy, which serves Kroger customers, associates, shareholders and communities well in a variety of operating environments.”

Including Kroger’s retail fuel operations, FIFO gross margin (Table 1) was 22.51% of sales for the second quarter of fiscal 2010, a decrease of 60 basis points compared to the second quarter last year. Excluding retail fuel operations, FIFO gross margin decreased 16 basis points. Supermarket selling gross margin (Table 1) declined 12 basis points without fuel. Kroger recorded an $11.5 million LIFO charge during the quarter, a decrease of $3.2 million from the same period last year. Excluding retail fuel sales, the LIFO charge decreased 2 basis points as a percentage of sales.

Including Kroger’s retail fuel operations, operating, general and administrative (OG&A) costs were 17.07% of sales, a decline of 33 basis points compared with the second quarter last year. Excluding retail fuel operations, OG&A increased 7 basis points from the same period last year.

Capital investment, excluding acquisitions and purchases of leased facilities, totaled $402.5 million for the second quarter, compared with $518.0 million for the same period last year.

Net total debt was $6.9 billion, a decrease of $393.5 million from a year ago. On a rolling four-quarters basis, Kroger’s net total debt to EBITDA ratio, adjusted for the southern California impairment charge in fiscal 2009 and Hurricane Ike in fiscal 2008, was 1.87 compared with 1.77 during the same period last year.

During the second quarter, Kroger invested $148.3 million to repurchase 7.3 million shares of stock at an average price of $20.43 per share. At the end of the quarter, approximately $409.2 million remained under the $500 million stock repurchase program announced in June 2010.

For the first two quarters of fiscal 2010, total sales were $43.6 billion compared with $40.5 billion for the same period last year. Excluding fuel sales, total sales increased 3.2% over the prior year. For the same period, identical supermarket sales, excluding fuel, increased 2.6%.

Net earnings for the first two quarters of fiscal 2010 were $635.3 million or $0.98 per diluted share. Net earnings for the same period last year were $689.5 million, or $1.05 per diluted share.

Kroger’s operating margin for the first two quarters of fiscal 2010 decreased 52 basis points as a percentage of sales compared to the same period last year. Excluding retail fuel operations, the Company’s operating margin decreased 57 basis points as a percentage of sales from the same period last year.

Kroger confirmed its identical supermarket sales and earnings guidance for fiscal 2010. The Company said it continues to expect identical supermarket sales growth, excluding fuel, of 2% to 3% for the year. Net earnings are expected to range from $1.60 to $1.80 per diluted share for the year. Kroger still expects to invest approximately $1.9 to $2.1 billion in capital projects in fiscal 2010.

“As our results show, we are committed to achieving solid financial results today while we invest in the future growth of Kroger’s business. As we move into the second half of the fiscal year, we are striving to achieve results in the top half of our earnings guidance range, even as the operating environment remains uncertain,” Mr. Dillon said. “Our talented associates are energized and focused on delivering a great experience in our stores for shoppers as we enter the holiday season.”