Kroger Company (KR)

Kroger has effectively used technology to boost its sales per square foot and will like continue to improve efficiency with its stake in management consultant Dunnhumby USA.

The biggest U.S. grocery chain was off to a strong start in fiscal 2008, posting Q1 profit that beat analysts’ expectations. Net income climbed 23.4% from a year ago to $386 million, or $0.58 per share – $0.03 more than consensus. Same-store sales also rose by 9.2% with fuel and 5.8% without fuel.

Kroger’s lower price strategy - working :

The startegy including generic and gas discount programs, has helped increase traffic. In addition, shoppers were given bonus gift cards if they spent their tax rebates in Kroger stores.

Based on the strength of its Q1 results, the company raised its full-year guidance and is now expecting same-store sales growth of 4-5% versus a previous forecast of 3-5%.

Forecast :

Kroger now anticipates EPS of $1.85-1.90, up from original guidance of $1.83-1.90.

As consumers try to reduce costs in a difficult economy, demand for store brands has risen. Kroger's sales of private brand goods increased 7 percent from November to January, and has gone from 24% of total grocery revenue to 27%. Kroger has met this increase in demand with a concerted marketing effort that places its private brands at the forefront of consumer sales.

Kroger Company exceeded analysts' expectations by reaching 53 cents per share, topping the 51 cents per share the majority of analysts projected. Driving this growth was the strong sale of its namesake brands, reflecting consumer spending caution in the midst of a recession.

With a broader selection of higher margin private label foods than its other traditional grocery store competitors, Kroger is well positioned to take advantage of the consumer trade down effect. As consumers look to trade down to less expensive goods, less expensive private label products will become more attractive to consumers. As sales of these goods rises, so will Kroger's margins and profits.