Kroger Posts Impressive Q4, Though Private Label Share Declined Slightly

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March 8, 2011

The fourth quarter was very good to Kroger Co., which reported increases in sales, market share and earnings, although store brands share declined slightly.

Increased fourth quarter tonnage in the grocery department was driven primarily by national brands in the quarter, according to Rodney McMullen, president and COO of the Cincinnati-based grocer, who noted the company’s corporate brand unit sales were up just slightly compared to the same period last year.

“For the quarter, corporate brands represent just under 35 percent of product units sold in our grocery department,” McMullen said during a call with analysts. “This was a slight decline in share compared to the fourth quarter last year. Kroger's fourth quarter tonnage results highlight the balance we seek in increasing both sales of corporate brands and national brands at the same time.”

For the fourth quarter, Kroger experienced product cost inflation of approximately 2.3 percent, excluding the effect of retail motor fuels, which was primarily driven by higher year-over-year costs in the meat department, McMullen said.

“We did see inflation across other store departments including grocery for which product cost inflation approached 1 percent,” he said. “This follows six consecutive quarters of deflation in the grocery department. We are passing along product cost increases from national brand suppliers in grocery today and we plan to continue to do so.”

Same-Store Sales

Kroger's same-store sales increased 3.8 percent, excluding fuel, in the fourth quarter, which yielded net earnings of $278.8 million, up 9 percent. Sales in the quarter increased 7.4 percent to $19.9 billion.

During the earnings call, Chairman and CEO David Dillon reported that this is the 29th consecutive quarter of positive same-store sales, excluding fuel.

“Our fourth quarter results reflect the balance we seek to achieve across our business, including positive identical sales growth, increased tonnage and loyal household count, good cost control as well as growth in earnings and earnings per share,” Dillon said. “We are encouraged by several improving customer and economic trends, which we hope signal the beginning of a return to a more normal operating environment.”

Kroger’s overall market share of grocery product sales in the markets in which it operates grew approximately 80 basis points during fiscal 2010, according to the Nielsen Homescan Data that McMullen reported on during the earnings call.

“This data also indicates that our share increased in 13 of the 19 marketing areas outlined by the Nielsen report, declined slightly in four areas and remained unchanged in two,” McMullen said. “Walmart supercenters are our primary competitor in 17 of the 19 marketing areas outlined by the Nielsen report. Kroger's overall share of grocery product sales in those 17 markets grew approximately 75 basis points during fiscal 2010.”

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