02 DecKR gets Hammered after Reporting 5.7% Sales Increase

Full Disclosure: I own 1000 shares in KR, which is my full investment goal for KR. My cost basis is $22.70. I plan to keep my position.

All told, sales were up 5.7% including food, excluding fuel sales were up 3.1%, yet the stock was down more that 10% at one point today, it is down 9.51% at the time of this post. Despite earnings improvement, a sales increase, cost reductions and an increase in dividends, Kroger gets hammered due to a lack of improvement in pricing and a statement from CEO Dillion that the economic recovery is slower and weaker than we anticipated.

When will CEOs learn to stop throwing cold water on a otherwise solid report. Dillion must be taking his talking points from CSCO CEO John Chambers.

There is a trend developing, the company announces earnings, the stock drops 10%. Take a look at this chart.

Earnings Improved!
Net earnings for the third quarter of fiscal 2010 totaled $202.2 million, or $0.32 per diluted share. In the third quarter of fiscal 2009, Kroger reported a net loss of $874.9 million, or $1.35 per diluted share.

“Kroger’s customers today are looking for lower prices and a great shopping experience, and our Customer 1st strategy delivers all that and more,” said David B. Dillon, Kroger’s chairman and chief executive officer. “Our team increased identical supermarket sales, earnings and earnings per share in the third quarter while controlling expenses to keep prices low for our customers. These results show Kroger’s strategy is working and that our core grocery business is strong and resilient.”

Costs were down
Including Kroger’s retail fuel operations, operating, general and administrative (OG&A) costs were 17.11% of sales, a decline of 65 basis points compared with the third quarter last year.

KR Narrowed Earnings
For full-year net earnings, Kroger narrowed its guidance range to $1.65 to $1.78 per diluted share. The Company is striving to achieve results in the upper half of this guidance range. The previous range was $1.60 to $1.80 per diluted share.

“Our enthusiastic Kroger team shines during the holiday season, and we expect a solid end to our fiscal year,” Mr. Dillon said. “We remain focused on delivering sustainable earnings growth today for our shareholders while investing for the future. In addition, Kroger’s stock buyback program, debt reduction, and recent dividend increase in September demonstrate our ongoing commitment to creating value.”

Kroger, the nation’s largest traditional grocery retailer, employs more than 334,000 associates who serve customers in 2,461 supermarkets and multi-department stores in 31 states under two dozen local banner names including Kroger, City Market, Dillons, Jay C, Food 4 Less, Fred Meyer, Fry’s, King Soopers, QFC, Ralphs and Smith’s. The Company also operates 784 convenience stores, 375 fine jewelry stores, 954 supermarket fuel centers and 40 food processing plants in the U.S. Kroger, headquartered in Cincinnati, Ohio, focuses its charitable efforts on supporting hunger relief, health and wellness initiatives, and local organizations in the communities it serves. For more information about Kroger, please visit www.kroger.com.

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One Response to “KR gets Hammered after Reporting 5.7% Sales Increase”

  1. John Beagle says:

    Here is what Credit Suisse has to say about KR:
    While we are clearly disappointed with these results, we continue to rate the stock Outperform. Kroger is by far the best operator in the space, it continues to gain share, it’s still on track to return to sustainable mid-to-high single digit
    earnings growth, and the valuation remains attractive. In addition, branded
    grocery re-inflation should emerge as an industry catalyst in 2011.

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