By cutting prices at a time when everything seems to be on the rise, Kroger Co., the biggest U.S. grocery chain, increased first-quarter profit more than analysts estimated and said on Tuesday that full-year sales will exceed its previous forecast.
Sales at stores open at least 15 months may climb as much as 5.5 percent, excluding fuel, this year, higher than its previous projection, Cincinnati-based Kroger said yesterday in a statement.
The shares rose the most in nine months in New York trading.
Consumers bought more store-branded products after gasoline surged to more than $4 a gallon and food costs soared. Kroger offered discounts on selected items to compete with Wal-Mart Stores Inc. and California-based Safeway Inc., and gave shoppers who converted tax-rebate checks into store gift cards a bonus of as much as $120.
“The American consumer is used to low food prices and is very receptive to that,” said Andrew Wolf, an analyst at BB&T Capital Markets in Richmond, Va. “[Kroger has] really been able to create a price image that is stronger than their traditional competitors.”
Wolf recommends investors hold Kroger shares.
Net income climbed 15 percent to $386 million, or 58 cents a share, from $336.6 million, or 47 cents, the grocer said. Sales rose 11 percent to $23.1 billion from $20.7 billion.
Kroger, with 2,474 locations including dozens in Nashville, rose $1.82, or 7 percent, to $27.82 Tuesday in New York Stock Exchange composite trading, the biggest gain since September 2007. The shares have climbed 4.2 percent this year, beating the 6.6 percent decline by the Standard & Poor’s 500 Consumer Staples Index.
“Customers are responding to offers that really hit home with them,” Chief Executive Officer David Dillon said on a conference call with analysts.
Full-year profit will rise to $1.85 to $1.90 a share, higher than an earlier projection of $1.83 to $1.90, Kroger said. Analysts surveyed by Bloomberg estimate $1.89 a share. Kroger earned $1.69 last year.
Kroger has posted 10 consecutive quarters of identical-store sales growth of 5 percent to 6 percent, John Heinbockel, an analyst with Goldman, Sachs & Co., said in a report yesterday.
“These gains have come without the benefit of significant square-footage growth,” he said. “Simply put, the company is chewing up meaningful market share.”
Kroger probably gained customers from independent grocers and restaurants as more people eat meals at home, Dillon said.
— Bloomberg News