Kroger Sees ‘Uncertain’ 2010

ELLIOT ZWIEBACH

CINCINNATI — Kroger Co. here believes 2010 will be “an uncertain year” with a difficult first half that will require it to be cautious and flexible with its pricing strategies, executives told investors here Tuesday.

Whether the company's true progress is reflected in 2010 financial results will depend on a lot of factors, David B. Dillon, chairman and chief executive officer, said in a conference call discussing fourth-quarter results.

“And while I'm sure you won't see improvements in the first or second quarters, you may be able to see some by the third and fourth quarters, and the full year should not end up being quite like the first and second quarters might imply," he said. "When we talk about the prospects for a better second half, we mean we expect sales dollars to become stronger because of the change to inflation from deflation, and we would expect to get the benefit of cost reductions.”

One area in which Kroger is making significant progress is building customer loyalty, Dillon said. “We've seen growth in the number of households that shop with us more often, and we have seen it now for some time. Over the course of a month those customers are buying more items, which is a healthy sign that as the world improves, you'll begin to see it in our financial results.”

For the fourth quarter, which ended Jan. 30, net income declined 26.9% to $255.4 million, while overall sales rose 7.2% to $18.6 billion and identical supermarket sales increased 1.2%. Net income for the year fell 94.4% to $70 million — reflecting the effect of an asset impairment charge for its Southern California operations in the third quarter — while sales were up 0.8% to $76.7 billion and ID supermarket sales climbed 2.1%. The company said it anticipates ID supermarket sales of plus-2% to plus-3% for fiscal 2010.

Dillon said Kroger's identical-store sales trend through the first five weeks of the first quarter is slightly ahead of the corporate guidance as a result of the timing of the Super Bowl and snow storms in some regions.

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