Amid a crumbling economy, plagued by heavy job losses and waning consumer discretionary spending, Kroger Company (KR) reported lower than expected third-quarter 2009 results, dragging the shares down by 11.9% to close at $20.13 on Dec 8, 2009. Kroger’s quarterly earnings of 27 cents a share, missed the Zacks Consensus Estimate of 36 cents, and dropped 25% from 36 cents delivered in the prior-year quarter.

This has prompted management to issue a more pessimistic earnings outlook. Kroger trimmed its full year 2009 earnings forecast to a range of $1.60 to $1.70 a share, down from $1.90 to $2.00 forecasted earlier. On a reported basis Incorporatedluding one-time items, the company reported net loss of $1.35 per share. One of the largest retail grocery chains in the nation, Kroger experienced a sudden deflation, which led to a decline in food prices.

Moreover, the intensifying price wars among grocery stores to lure budget-constrained consumers also compelled Kroger to cut prices. This contributed to weak sales and margins in the third quarter. Total revenue Incorporatedluding fuel center sales, rose marginally by 0.3% to $17,669.1 million, whereas it rose 2.2% sans fuel.

Fuel prices were lower in the quarter. Excluding fuel center sales, comparable supermarket sales jumped 1.7% to $14,767.4 million, whereas identical supermarket sales (stores that are open without expansion or relocation for five full quarters) rose 1.3% to $14,289.4 million. Kroger now expects identical supermarket sales (sans fuel) growth of 2% to 2.5% for fiscal year 2009, down from 3% to 4% anticipated earlier.

Including fuel center sales, comparable supermarket sales climbed 0.4% to $16,403.8 million, whereas identical supermarket sales remained relatively flat at $15,865.1 million. Kroger’s conservative outlook underlines the raging competition among grocery stores and chains such as Wal-Mart Stores Inc. (WMT), Safeway Inc (SWY) and Whole Foods Market Inc. (WFMI).

Retailers worldwide are grappling with a weaker consumer environment, as cash-strapped customers are now prioritizing their purchases, trading expensive brands for cheaper brands. Kroger ended the quarter with cash and cash equivalents of $1185.9 million, and long-term debt of $8,053.7 million, representing debt-to-capitalization ratio of 62.4%.

Capital expenditure for the quarter was $552.1 million. Trailing-twelve months’ net debt to EBITDA ratio was 1.93, down from 1.95 in the same period last year. During the third quarter, Kroger bought back 2.4 million shares at an average price of $21.35 per share aggregating $50.5 million. At the end of the quarter, the company had $386.3 million at its disposal under the $1 billion share repurchase program announced in Jan 2008.

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