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Kroger, shrugging off tough economy, posts respectable second-quarter gains

BY Jim Frederick

CINCINNATI The Kroger Co. shrugged off a tough economic climate to post healthy sales increases in its second quarter ended Aug. 16.

Despite a faltering economy, Kroger churned up sales of $18.1 billion for the three-month period, marking an increase of 11.9 percent over last year’s second quarter. Same-store supermarket sales were up 9.7 percent when fuel-center sales were factored in, but even without the contribution of the company’s 737 on-site gas stations, same-store revenues rose a healthy 4.7 percent over prior-year levels.

Second-quarter net income edged up 3.4 percent for the supermarket and pharmacy giant, to $276.5 million.

Kroger chairman and chief executive David Dillon characterized the gains as “strong,” and credited the renewed attention on service through Kroger’s “Customer 1st” strategy.

“We continue to generate cash flow to sustain our strong capital program and reduce outstanding shares. At the same time, we are investing in improving our customers’ overall shopping experience,” said Dillon. “Our ability to balance these objectives is fundamental to our success, particularly in today’s challenging economic environment.”

Also helping to drive the gains: a favorable comparison with last year’s results, which included pre-opening and transition costs associated with Kroger’s purchase of two regional chains, Scott’s and Farmer Jack. “The current year rate benefited from the absence of these costs,” noted the company. “The current year rate also benefited from strong sales leverage and lower incentive compensation, which offset inflationary pressures in several areas.”

For fiscal year 2008, Kroger said it expects “a flat to slightly improved operating margin.”

Nevertheless, Dillon issued a cautionary note as the company rides out an uncertain economy, potential union disputes in some areas of the country, and the aftermath of Hurricane Ike and other big storms. “We know market conditions will continue to be a challenge and we believe our strategy works well in good times and bad,” he said. “Kroger’s team and our overall strategy clearly stand out in the current environment.”

Kroger said Ike and its remnants disrupted operations in Texas and several inland states, particularly Indiana, Kentucky and Ohio. “The financial impact of the hurricane will not be significant enough to cause Kroger to alter its strategy,” the company reported. However, noted Kroger, “The final result of the damage and disruption from the storm” could further weigh on results.

Kroger, which this year is celebrating its 125th year in business, operates 2,476 supermarkets in 31 states—more than 2,200 of which contain pharmacies and 737 of which include fuel stations—in 31 states. Among its retail banners: Kroger, Ralphs, Fred Meyer, Food 4 Less, Fry’s, King Soopers, Smith’s, Dillons, QFC and City Market. Kroger also operates 779 convenience stores and 393 jewelry stores.

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Michael Madnick appointed to new position at Fox

BY Alaric DeArment

LOS ANGELES 20th Century Fox Licensing Merchandising announced Tuesday that it had appointed Michael Madnick to the newly created position of executive director of creative production.

Madnick’s job will be to manage Fox’s growing workload of creative projects, television commercials, content-heavy product development and special events, said Elie Dekel, executive vice president for licensing and merchandising for Fox L.

“As we continue to build synergies between our internal creative teams and those of our partners, it’s essential to have someone who can bridge that gap and represent our brands in the best creative sense,” Dekel said. “Michael is just the person to do this.”

Madnick, a graduate of California State University in Northridge, worked in several producer roles for shows in E!, NBC, TLC, Bravo, Comedy Central and the USA Network on shows such as “Fear Factor,” “The Man Show,” “Property Ladder” and “YO on E!.” For Fox, he has worked as vice president of special projects and live events for Fox Family Worldwide, where he worked on all special television products for Fox Family and Fox Kids.

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Discount Drug Mart’s lighting retrofit to save $14.2 million

BY Michael Johnsen

CLEVELAND More than half of the 67 stores operated Discount Drug Mart have completed lighting retrofits that the retailer expects will deliver a combined energy and maintenance cost savings equal to the margin earned on $14.2 million in sales over the life of the new lamps, GE Consumer & Industrial announced Tuesday.

The prescription for better, more efficient lighting involved a shift from 8-foot T12 linear fluorescent lamps and electromagnetic ballasts to energy-saving 32-watt 4-foot T8 linear fluorescent lamps and GE ProLine high-performance electronic ballasts.

The installation involved overhead lighting in sales, office and storage areas—an average of 320 fixtures in each 25,000 square-foot store.

“We initiated this project with a primary focus on improving operational efficiency,” stated John Wright, Discount Drug’s co-chief operating officer. “We have completed it with the additional satisfaction of having improved the quality of light in our stores. That means we’ve improved the customer experience, and perhaps set ourselves apart from competitors.”

The stores’ new GE lighting system delivers about 30 percent in energy savings compared with the previous system—over $560,000 per year across the 37 retrofitted stores, for the life of the lamps, GE reported.

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