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    Kroger Posts Q3 Loss on Ralph’s Write-down

    Despite posting an $875 million loss in the third quarter and a cutback of its full-year forecast that sent its stock price down more than 12 percent in midday trading Tuesday, The Kroger Co.’s same-store sales increased 1.3 percent without fuel during the period ended Nov. 7, 2009, vs. the same period last year, while the chain’s total sales, including fuel, rang up $17.7 billion vs. $17.6 billion during the same time frame last year.

    Despite posting an $875 million loss in the third quarter and a cutback of its full-year forecast that sent its stock price down more than 12 percent in midday trading Tuesday, The Kroger Co.’s same-store sales increased 1.3 percent without fuel during the period ended Nov. 7, 2009, vs. the same period last year, while the chain’s total sales, including fuel, rang up $17.7 billion vs. $17.6 billion during the same time frame last year. Excluding fuel sales, Kroger’s total sales increased 2.2 percent over the prior year.

    “The environment continues to create cautious consumers,” Kroger chairman and CEO David Dillon said in a conference call. “Some are choosing to be more disciplined in their spending and are buying down, while others are holding back altogether on purchases because they simply don’t have the money to spend.”

    The Cincinnati-based retailer’s quarterly $875 million loss, which includes non-cash asset impairment charges of $1 billion after-tax primarily as a result of a goodwill write-down at its Los Angeles-based Ralphs division, is stark vs. the $238 million net income, or 36 cents per share, it tallied in the year-earlier period. Kroger officials said that the 263-store Southern California banner has been battered by the state’s rising double-digit unemployment and prolonged housing slump. Without the Ralphs write-down, profit would have been $176.7 million, or 27 cents per share.

    “The operating environment we saw during the third quarter was more challenging than we anticipated, obscuring some otherwise strong fundamentals in our performance, such as exceptional tonnage growth, market share gains, increases in loyal household count, and good cost control,” said Dillon. “In the near term, our financial results are being pressured by factors including persistent deflation,” he added, among them unusually intense competition and a lingering cautious consumer mindset. “We are making adjustments to balance the challenges of the current environment with Kroger’s long-term objective for sustainable identical-sales and earnings growth, which we believe will create value for shareholders.”

    For the first three quarters of fiscal 2009, total sales were $58 billion vs. $59 billion for the same period last year. Excluding fuel sales, total year-to-date sales increased 3.3 percent over the same period in the prior year, while same-store supermarket sales, excluding fuel, increased 2.4 percent vs. the same year-ago period.

    The company expects the still sluggish economy and skittish consumer behavior to continue to affect its business for the remainder of the year. As a result, Kroger is projecting full-year same-supermarket sales to grow 2 percent to 2.5 percent without fuel for fiscal 2009, and full-year fiscal 2009 earnings to run between $1.60 to $1.70 per share. (The guidance excludes the Southern California impairment charges recorded in the third quarter.)

    “While these revised forecasts are well below what we had expected to deliver for the year, we believe they appropriately reflect the challenges of the current operating environment,” said Dillon, noting the chain’s “continued growth in tonnage and loyal households and our competitive advantages [that] position Kroger and our shareholders to benefit once operating conditions begin to normalize.”

    Looking ahead to fiscal 2010, Kroger anticipates that the current operating conditions will extend at least through the first half of the year. Deflation is expected to moderate throughout the year, and Kroger will follow suit by cycling many of the price investments put in place during the first half of 2009.

    Kroger, the nation’s largest traditional grocery retailer, operates roughly 2,500 supermarkets and multi-department stores in 31 states under two dozen local banners.

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