RNDY

By Ilan Brat 

Kroger Co. boosted its full-year outlook on the back of stronger-than-expected sales growth in the third quarter, offering an indication of health in the U.S. economy from one of the country's largest retailers.

The Cincinnati-based grocer, the country's second-largest food retailer by sales after Wal-Mart Stores Inc., said sales at established stores, excluding fuel sales, rose 5.4% in its latest quarter. That surpassed expectations and prompted an increase in its sales guidance for the fiscal year ending in January. It now expects same-store sales growth of between 5% and 5.2%; its previous target was 4% to 5%. It also raised its per-share profit forecast to $2.02 to $2.04, from $1.92 to $1.98.

Slowing economic growth in China and other emerging markets has sparked worries in some quarters that the U.S. economy could be heading for its own slowdown. But Kroger executives said they see in their company's performance signs that consumer confidence is still strong. Tonnage sold, the number of store visits per household and overall household visits grew, they said.

"The economy overall continues to slowly improve, and customers continue to feel more optimistic," said Chief Executive Rodney McMullen.

Kroger shares climbed by 4.7% in afternoon trading Thursday to $39.91 each.

Kroger also is benefiting from its ability to take market share from competitors. In recent years, it has been one of few large grocers to report consistently strong sales growth. Convenience stores and general retailers like Target Corp. are increasing their offerings of fresh food, ratcheting up the battle for food spending and hampering many conventional supermarkets' sales growth. Kroger has fought back by harnessing shopping data to reward the loyalty of its best customers, remodeling stores and keeping its prices in check.

Kroger also acquired other, smaller retailers to broaden its reach and add new expertise. In November, for example, it agreed to buy Milwaukee-based Roundy's Inc. to expand into a state, Wisconsin, where it doesn't currently have stores.

A consumer shift toward fresh, natural foods also has helped Kroger. The produce, fresh-prepared foods and other perishable foods grabbing a bigger share of shopper's grocery baskets typically carry higher profit margins than many of the packaged foods and other goods whose sales have been stagnating in the center aisles of stores.

"If you look at the fresh departments, that's been a [growth] trend that's been ongoing for a period of time and isn't slowing down at all," Mr. McMullen said, adding that it is bolstering gross margins for the company.

Overall, Kroger reported a profit of $428 million, or 43 cents a share, up from $362 million, or 36 cents a share, a year earlier. Revenue edged up to $25.1 billion from $25 billion a year earlier, but fell below analyst estimates as declining oil prices lowered revenue from retail-fuel sales. Analysts anticipated 39 cents in earnings a share and $25.2 billion in sales, according to Thomson Reuters.

Chelsey Dulaney contributed to this article.

Write to Ilan Brat at ilan.brat@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

December 03, 2015 21:17 ET (02:17 GMT)

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