Kroger reports strong Q1 2013 results

Retailer continues growing online business, sees Fort Wayne, Ind., market as 'successful pilot'

CINCINNATI — Kroger posted sales of $30 billion and profits of $481 million in first quarter 2013 as it slowly grew its online business and foresaw increased investment in new markets and increased square footage in its stores.

The results reported Thursday compared with first quarter 2012 sales of $29.1 billion and profits of $439 million. Earnings-per-share guidance for fiscal year 2013 was increased from $2.73 to $2.80.

"Kroger achieved strong sales and record earnings per share for the quarter, and our customers' positive view of us continues to improve," Kroger chairman and CEO David Dillon said. "This is because of our continued focus on the 'Customer 1st' strategy. Our first quarter results give us the confidence to raise our guidance for the year."

In a call with Wall Street analysts Thursday morning, Dillon cited Fort Wayne, Ind., as a model for the company's expansion plans, noting that new stores, remodels and acquisitions have doubled Kroger's market share in Indiana's second-largest city over the past five years. "We view this as a successful pilot," Dillon said. The company invested $646 million during the quarter, compared with $557 million during the same period last year, and it continues to forecast that it will invest between $2.1 billion and $2.4 billion throughout the fiscal year.

Dillon also praised the 2,419-store company's pharmacy business, saying it "continues to deliver strong performance" and growth in scripts amid retention of Express Scripts customers who moved over to Kroger during the pharmacy benefit manager's dispute with Walgreens last year, as well as the generic wave, which reduces retailers' pharmacy sales numbers but increases script counts as customers switch over to cheaper versions of more expensive branded drugs. The company expects to launch 75 new items throughout the year as part of its Simple Truth and Simple Truth Organic private-label lines.

Kroger's online business has been increasing at a modest rate as it continues experimenting with it at King Soopers stores in the Denver market. Dillon said he felt "very good" about the company's direction in digital, saying it was about more than what is sold online and also about using strengths and insights on digital strategy and needs, as well as testing various omnichannel services. Kroger has been working with customer-experience research and services company Dunnhumby to make its digital program more relevant and is making "huge progress" in connecting with customers, as the number of people downloading and using apps has increased significantly.


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