Grocery chain Kroger sticks to cautious guidance, cites uncertain economy

By Dan Sewell, AP
Wednesday, September 29, 2010

Kroger sticks to guidance amid uncertainty

ERLANGER, Ky. — Kroger Co. leaders see some encouraging signs in customers buying pricier groceries such as Boar’s Head meats, Starbucks coffee, wines and natural foods, but say the economy overall remains uncertain and volatile.

David B. Dillon, chairman and CEO of the nation’s largest traditional grocer, told an investors conference near Cincinnati on Wednesday that food stamp usage doubled since the beginning of the recession and remains high, and that consumers remain cautious amid high unemployment and a housing slump.

“Clearly, the customer is in kind of a funk,” Dillon said.

Kroger stuck with guidance for earnings this year of $1.60 to $1.80 per share. Analysts surveyed by Thomson Reuters expect $1.78 on average.

Kroger’s chief financial officer, Mike Schlotman, said Kroger thinks it will reach the upper half of its range, adding that some analysts are asking why the chain hasn’t raised guidance after a solid second quarter.

“We feel like the economy is getting better, but it’s certainly not robust,” Schlotman said.

Kroger has focused on building customer loyalty and adding households as regular shoppers during the tough economic times and aggressive price competition among grocers. In its second-quarter earnings report this month, Kroger said net income rose 2.8 percent and revenue was up 6 percent.

Kroger officials say they are rolling out technology advances that will please customers with speedier checkout lanes and should increase use of digital coupons, which are quicker to use than paper ones.

“Even in an economy like this, it is clearly not all about price,” Dillon said.

Kroger officials said they remain interested in acquisitions that would fit with their markets and store standards, but that asking prices have been too high. They said they’ve also been trying to buy plants to expand production of their booming store-brand lines.

Kroger shares were down 15 cents, at $21.73, in afternoon trading. They have traded from $19.08 to $24.80 in the past year.

Kroger operates nearly 2,500 grocery stores in 31 states, with local banners that include Ralphs, Fred Meyer, Food 4 Less, Fry’s, King Soopers, Smith’s, Dillons, QFC and City Market.

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