Kroger Stock Plunges After CEO Discloses Recovery "Slower And Weaker"; Americans "Cautious" In Buying Food

Another day passes, proving that you have economic propaganda (is the Dow at 36,000 yet, solely on ponzi hot potato passing between 3 computers and 2 primary dealer), and then you have reality. A quick look at KR stock indicates that not all is good with the largest US supermarket chain. Sure enough, earlier today, the company announced it was lowering the top end of its full-year profit forecast. Kroger projected per-share earnings of $1.65 to $1.78, compared with its previous forecast of $1.60 to $1.80, according to a statement today by the Cincinnati-based retailer. The consensus is $1.78. It was, however, the commentary from the conference call is most telling: The slow economic recovery is hurting grocery sales and consumers are “cautious in their spending,” Chief Executive Officer David Dillon told analysts on a conference call. The recovery is slower and weaker than Kroger had expected and competition remains “intense,” he said. Hear that: the economy is "slower and weaker"...Although that only pertains to such irrelevant items as food and drink. And who needs those when you have Kindles to keep you fed and warm at night.

America is now officially insane.

And here are some tidbits from the conference call on what inflation is doing to margins (and passed through prices):

• Now I will move on to food costs. We are seeing inflation in some of our perishable departments as Dave mentioned, particularly meat and produce. Deflation is persisting in our grocery department largely due to increased promotional spending by national brand suppliers. This promotional spending masks some of the list price increases we have received. The level of deflation is about 50 basis points if you exclude milk. Grocery represents about half of our supermarket business, so this level of deflation has a meaningful impact on our total company results. Inflation in grocery has been slow to develop, but we still believe it's coming.
• Many of you ask about Kroger's ability to pass along product cost increases to customers, particularly at a time when shoppers are spending cautiously. We believe it depends on the product. We are passing on product cost increases from national brand suppliers in the grocery department today, and we will continue to do so. Inflation in the perishable departments affects our business differently. In these areas, product costs are typically driven by short-term factors such as seasonality and product supplies. So product costs can vary from quarter to quarter.

Q: And then last question for you is back on this inflation topic. I think there's a lot of debate in the market about whether supermarkets can or cannot pass it through and I think what investors are doing is looking at the last year or so and saying we saw inflation in some categories and you had trouble passing it through. But I think what I heard from you today was that, that was in the perishable section where there is volatility and maybe it is more difficult to pass prices through versus dry grocery center of the store where it's a little bit easier to pass it through, and if we think about 2011 it's really about re-inflation in dry grocery. So should we feel more comfortable with your ability to pass through prices next year than where we've been?

A. I think that you've correctly identified the two thought processes. If the categories you're talking about are perishable categories, and in that I would include fluid milk, you're talking about something that varies regularly, sometimes daily, on prices, highly competitive, changes the tonnage rather quickly when you change your retail prices, and those get balanced out however they get balanced out through the year. Sometimes you end up worse off because of competitive pressures, sometimes you end up better off. But whatever it is, that ends up being how it works out. The other category are the dry grocery or the branded products. On those products I think you should think of that as a category almost unto itself. And the reason I describe it differently is because when you're talking about being able to pass through prices, generally you're really talking about or should be talking about I think about when a vendor is giving us a cost increase that they've chosen to make, sometimes it's driven by underlying commodity costs, sometimes not. And in those cases I think it behaves very predictably. That's the inflation we were referring at the beginning of the year that we thought we'd see a little bit of as opposed to not seeing inflation.

I actually separate the perishables and - well, I don't ignore it. For purposes of whether we passed it through or not, I do. So I think you've got to look at it that way. And I think that picture will roll out the same way next year. We don't know whether we'll see the inflation or not. That's a high variable for next year. But we definitely think that that's question that has to be answered as we go through the year.

And for another very good look at how not only domestic, but international megastores are passing on costs, take a look at Carrefour.

Comments

[Uncle Remus]

Long pork recipes?

[ecuador mike]

This blog is not full of the uneducated unemployed masses.  Almost all the entries are at least clever and usually well said.  There are intelligent pople posting here.  So when a common theme to alot of the posts on the blog are about people saving food for a huge catastrophe of proportions we've never seen in our lifetime, of rioting in the streets and burning of towns and such, it should not be taken lightly.  I agree with alot of what's been posted in reponses here.  It seems to me the best answer is to get as much money as possible together to lessen the impact at least on your own family.  To that end, I would think the best bet would be long TBT, as other countries will not be wanting our long term debt as they must see the writing on the wall as much as we in this room do.  Also to put your cash overseas in a commodity rich country like Australia.

[Trying to Understand]

We have grown a garden and canned for years, even before the crash.  We can 'everything'... veggies, fruits,syrups, jams, jellies, pickled items... almost everything a grocery store would normally sell us.  We make our own noodles for spaghetti and such.  We also can our deer meat, with the exception of the steaks, they are frozen, we make our own corned venison, sausages and use plain, unsmoked or untreated pork bellies, to make our own (nitrate free) bacon. 

I buy flour, rice, oats, spices, yeast, baking powder, butter, cheeses and milk at the store.  The rest of what I buy may be considered "extras" to other people, but because we grow/harvest 98% of our food, we can afford the "extras" that most people can't now-a-days.

In talking to people, we are not alone, thousands of people - if not more - have taken up gardening and canning because they too see what is coming and are trying to prepare.  This must impact retailers selling the finished products.

When I told my Kroger store manager that we put up about 2,000 jars of food a year he got a very bewildered look on his face, like how can he compete with that.

Does Ball (makers of canning jars, lids & rings) or the Presto Pressure Cooker companies sell stocks?

We, as a public, are spending money.  Just not on the finished product...

[Red Neck Repugnicant]

When I told my Kroger store manager that we put up about 2,000 jars of food a year he got a very bewildered look on his face, like how can he compete with that.

No.  Sorry.  That's incorrect.

That bewildered look was him trying to figure out if he could turn your grocery cart upside down and trap you inside of it until a psychiatrist or zoologist arrives.

[Trying to Understand]

sorry, page did not load, so I hit reload and the post appreared twice!

[southerncomfort]

Kroger smells like sour dairy when you walk in.  So competition is eating it alive.  If you walk into a food store, and it smells rank, you'll either just buy beer or shop elsewhere.  As for meat, we all know it's heck on the colon.  Sure it tastes great - so do McDonald's fries - but if you live with your Tomorrow Man - you already probably try to eat healthy - even if it costs more - less meat and not shopping at food stores that don't smell clean or aren't sporting enough variety for those of us who are light on the hoof these days.  For those who want to spin what your eyes, nose and body see and smell when walking into a Kroger into some fantasmagoric read on the domestic and global economies, well, lol, guess you're eating what they're selling at Kroger or something - cause these simple issues about Kroger are simply Kroger things that will either be ironed out, or competition will continue to eat Krog's market share.

[pussfeller]

Unless you are buying your food from local farmers whom you know have safe sustainable farming practices, you are just buying reshuffled and remarketed crap from the same factory farm system

I don't care what the label says, or the store front, or whether its McDonalds or a chain dinner house resturant, or a fancy pants gourmet resturant (excepting perhaps some which cater to foodies) its all the same stuff and food quality. Gross and Grosser.

Don't kid yourself because you paid more. It's all the same. Buy local if you can. If you can't then just be careful, cause what with the level of gov't/bigag integration, there are no realistic free market checks on the system left anymore.

And now, they are trying to harrass the 1% that is actually making real food the right way. Aren't these people ever satisfied?