Showing that it still has some muscle, though perhaps not the vaunted power it once held, unionized labor overshadowed an otherwise strong performance at grocery store chain Kroger (NYSE: KR).
Sales exceeded forecasts, rising 7% to $20.7 billion, and although profits fell a penny short at $0.47 a share, management attributed that to the labor struggles it has thus far averted, which cost it $0.02 a stub. Considering that same-store sales rose for the 15th consecutive quarter, and that Kroger raised its low end of comp sales and reiterated full-year guidance (while also announcing a huge $1 billion share buyback program), one could say it was a pretty good quarter.
Yet the grocer's stock fell by 6% yesterday as the potential for greater union head-butting arose in southern California. The situation isn't limited to Kroger, but potentially includes Safeway (NYSE: SWY) and SUPERVALU (NYSE: SVU), too. Strikes have been authorized if negotiations fall through. The last time Kroger faced a strike was in 2003, when unions struck for five months, resulting in huge losses.
Whatever the merits of the union's arguments, Kroger and the other grocers would also be caught in the vise of Wal-Mart (NYSE: WMT), which is not unionized.
Kroger has been holding its own against the mass-market discounter, which offers up home furnishings, appliances, and furniture at its Supercenters. The grocery chain has even been able to steal market share. It competes against Wal-Mart's own megastores in more than 30 markets where the one-stop shopping giant operates some 1,000 of its stores. A strike at this juncture could have customers returning to Wal-Mart, interfering with Kroger's growth plans. The unrest averted in Texas probably has to do with the state not being as friendly to union maneuvers as California is.
That's apparently what has the market worried. Yet to this Fool, it presents an opportunity. I believe that Kroger has been fairly priced for a while, though it has managed to surprise me with the strength of its expansion. Any weakness in its stock price now caused by labor unrest would simply mask the underlying ability of this huge enterprise. It operates more than 2,400 grocery stores, 700 convenience stores, 400 jewelry stores, and 40 food processing plants. It is challenging Whole Foods (Nasdaq: WFMI) by offering wider assortments of organic foods and is still acquiring more stores from A&P (NYSE: GAP) and SUPERVALU.
A strike, even one of short duration, would not be welcome, but I don't believe it would be crippling, either. As companies grow more profitable, they find that the workers who helped them achieve that success want to share in a greater part of it. Undoubtedly, it comes down to degrees of how much pie-splitting is done. I don't find Kroger to be a buy at these levels yet, but I will be watching what happens with interest.
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Fool contributor Rich Duprey owns shares of Wal-Mart, but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
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