CINCINNATI — Kroger Co. here boosted its year-end sales and earnings guidance last week, citing solid trends in the third quarter, although executives said they expect consumers to remain cautious.
The company is projecting identical-store sales excluding fuel to grow between 4.5% and 5%, compared with previous guidance of 4% to 5%, and earnings to hit $1.95 to $2 per share, compared with a previous range of $1.85 to $1.95.
David B. Dillon, chairman and chief executive officer, said Kroger's optimistic projections are based on the knowledge it can operate in the current economic environment.
“The fact we've been able to grow loyal households and to make ends meet really suggests we can be successful in this environment,” he told analysts during a conference call. “We now know we can work in an environment like this and be successful. So what has changed is that we went from the unknown to the known.
“We expect the foreseeable part of next year to be much like what we've seen this year. I don't see it crashing or burning but I don't see it as robust and climbing either. It all depends on consumer confidence.”
W. Rodney McMullen, president and chief operating officer, said he expects product cost inflation, excluding fuel, to continue at the current level of approximately 6% through the first half of 2012.
J. Michael Schlotman, senior vice president and chief financial officer, said the situation could change in the second half. “I don't think there's been enough movement in corn or wheat to actually think about having price declines, but I think there could be price stabilization when we get to the back half of next year,” he noted.
John Heinbockel, an analyst with Guggenheim Securities, New York, said he expects Kroger to “fare better than most” in the current economy, though the impact of dis-inflation and the cycling of the payroll tax holiday could hurt Kroger and other conventional supermarkets. He also said “macro headwinds” in 2012 could dampen the chain's profit growth.
For the quarter, which ended Nov. 5, net income fell 3.1% o $195.9 million — due to a higher inventory charge in the quarter and a tax benefit a year ago — while sales rose 10.3% to $20.6 billion and identical-store sales, excluding fuel, rose 5%. For the year-to-date, net income was up 8.5% to $909 million, with sales rising 10.9% to $69 billion.
Unit count and shopping trips were up, Dillon said, but tonnage was flat. “Smaller baskets are the norm across all customer segments, in line with trends we began detecting in June,” he explained. “We have seen a continued slowing of the rate of growth of unit movement throughout the year.”