Wednesday, June 23, 2004

Kroger reveals dispute's effect


Ralphs, Food 4 Less strike, lockout reduced first-quarter earnings by 25%

By Randy Tucker
Enquirer staff writer

Kroger Co. said Tuesday it has struggled to win back customers at its Ralphs and Food 4 Less chains in Southern California after an 18-week labor dispute that helped drag down first-quarter earnings by 25 percent.

Net income for the quarter fell from $351.5 million or 46 cents a share a year ago to $262.8 million, or 35 cents a share - missing analysts' expectations by a penny a share.

Shares of the Cincinnati-based grocery giant closed Tuesday at $17.84, up 47 cents.

The company said $71.6 million of the reduction in earnings, or 10 cents a share, was attributable to the strike and lockout that sidelined 19,000 employees from Kroger's Ralphs unit and about 50,000 from Albertson's Inc. and Safeway Inc.'s Vons division.

About 30 percent of the strike-related costs in the first quarter were tied to Kroger's efforts to rebuild the business in Southern California, including winning back Ralphs customers who shopped elsewhere during the labor dispute, vice chairman Rodney McMullen said during a conference call with investors.

And while business at Kroger's California stores has bounced back somewhat in recent months, the company said, there's no telling how long the trend will continue.

"The weekly costs associated with the post-strike recovery continue to moderate,'' McMullen said. But "at this point, because of competitive activity in Southern California, we cannot estimate how long this will continue.''

Overall, the nation's largest traditional supermarket chain saw sales trend upward in the first quarter.

Quarterly sales rose 3.9 percent to $16.9 billion, compared with $16.3 billion in the year-ago period.

Meanwhile, same-store sales - or sales at stores open at least a year - were up 1.6 percent at stores that sell gas and 0.5 percent at stores that do not sell fuel.

Despite the positive sales trends, some investors remained cautious.

A "1 percent (sales increase) is not good enough," said Jason Whitmer, an analyst with FTN Midwest Research in Cleveland. "There's still a long way to go and a lot of investment to be made to find some bottom-line improvement.''

Kroger said it expects 2004 earnings will be lower than 2003's.

E-mail rtucker@enquirer.com




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