You've got to give a little to get a lot in return. Such is the case with Kroger
The grocery store chain reported a strong third-quarter top line with sales rising 9% and comps growing 7.8% (with fuel). Excluding a $15.9 million charge from the damage caused by Hurricane Ike, profit growth was flat year over year. But thanks to share repurchases, earnings per share clocked in at $0.39, ahead of both analyst expectations and last year's showing.
Where the give-and-get comes in, and where Kroger's strength lies, is in the robust performance of Kroger's private-label products. According to the Food Marketing Institute, 60% of consumers are now buying some in-store brands, and they are becoming an important component of sales at other grocery chains like Safeway
This is promising for Kroger, given that its private-label business is one of the most extensive in the industry. The company saw the industry trend further develop during the quarter, as its shopper-card data revealed that 14% of its customers traded down for corporate-branded items. Similar to the effect of Wal-Mart's
Still, investors sent the stock down 7% yesterday as management's improved earnings guidance outlook still didn't meet analyst expectations. At current levels, Kroger is trading close to where it was at the beginning of the year. Yet the supermarket chain has galvanized its leadership position in an industry that is generally seen as recession-resistant.
Consumer-goods companies like Kraft
I expect the company to control costs better next quarter, which will hopefully help bolster profits. But more importantly for next quarter, I think Kroger's willingness to give a little more to consumers means investors will end up getting more down the road.
Irv, more supermarket Foolishness in Aisle Five:
Fool contributor Rich Duprey owns shares of Kroger and Wal-Mart but does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
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