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Kroger performance remains 'solid'.

CINCINNATI -- Kroger Co. saw a healthy profit gain in the fourth quarter despite flat sales, and posted robust earnings and revenue gains for its 2008 fiscal year.

For the quarter ended January 31, Kroger's earnings climbed 8.1% to $349.2 million, or 53 cents per diluted share, slightly above Wall Street's estimate of 52 cents per share. A year earlier the company reported profit of $322.9 million, or 48 cents per diluted share.

Total sales in the fourth quarter were $17.3 billion, compared with $17.2 billion in the fiscal 2007 quarter. Excluding the fuel business, total sales in the 2008 quarter rose 4.4% while identical-supermarket sales edged up 3.8%, according to Kroger.

"Our performance during the quarter was solid in an environment that was uncertain," Kroger chairman and chief executive officer David Dillon said in a conference call with analysts.

He cited a strong performance by Kroger's exclusive and store brands, which represented 27% of grocery revenue and a record-high 35% of grocery unit sales. In addition, he noted that the meat, grocery, nutrition, pharmacy and deli/bakery departments generated better-than-average identical-store sales results, while discretionary general merchandise sales have slowed. "We're finding that customers are basing their purchasing decisions more on what they need versus what they want," Dillon explained.

For the full year, total sales came in at $76 billion, up 8.2% from $70.2 billion in 2007. Fiscal 2008 earnings were up 5.8% to $1.2 billion, or $1.90 per diluted share, in line with analysts' projections. Full-year identical-supermarket sales gained 5%.

Dillon pointed out that Kroger added 61 basis points in market share in 2008, marking the fourth straight year that the company has gained significant share. "There is still plenty of market share opportunity out there for us," he added. "We estimate that approximately 45% of the share in our major markets--as much as $100 billion--is still held by competitors who do not have Kroger's economies of scale."

Looking ahead, Kroger forecasts a profit of $2.00 to $2.05 per diluted share for fiscal 2009, compared with the Wall Street projection of $2.05. The company expects identical-supermarket sales to grow 3% to 4%, excluding fuel.

"We continue to believe a strong correlation exists between rising unemployment and industry sales weakness and are concerned that management might be too optimistic regarding its ability to hold identical-store sales," Pali Research analyst Robert Summer comments.

For Kroger's fiscal 2009 first quarter ending in April, analysts project earnings of 56 cents to 65 cents per share, with an average estimate of 61 cents, compared with 58 cents in the preceding year, according to Thomson Financial. First quarter revenue is forecast to grow 1.2%, with an average analyst estimate of about $23.4 billion, compared with $23.1 billion in the prior-year period.

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Date:Mar 23, 2009
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