Friday, June 23, 2000

Kroger strong; stock price isn't

By Lisa Biank Fasig
The Cincinnati Enquirer

        The Kroger Co. had a pretty good story to tell its shareholders at its annual meeting Thursday. Sales and profits are up, it is reducing costs ahead of plan and its market share is growing.

        In short, it filled a lot of grocery carts.

        “We had a clear plan for the year, and I would say that across the board we either achieved or came within shouting distance of achieving our plan,” Joseph Pichler, chief executive and chairman of Kroger, said in an interview after the meeting.

        But, said the leader of the nation's largest grocery store chain, the company re mains frustrated by its low share price. Kroger, which a year ago was trading at roughly $28 after a stock split, closed Thursday at $20.683/4, up $1.061/4.

        Mr. Pichler told shareholders a number of issues are beating the company's share price down. A rash of major supermarket mergers, growth of competing super centers such as Wal-Mart and a trend toward technology stocks have caused Wall Street to move away from the grocery sector.

        “The index of peer group stocks in the supermarket industry experienced a similar decline,” Mr. Pichler said. “The whole industry went into the tank.”

        The executive called it disappointing because Kroger has performed well. In 1999, sales rose 6.1 percent to $45.4 billion. Earnings per share rose 26 percent to $1.13 a diluted share, excluding costs related to its $13.5 billion acquisition of Fred Meyer in May 1999.

        New products, services and store numbers are expected to continue growing sales. Receipts at Kroger's pharmacy division, which helps drive store sales, more

        than doubled in the past five years to $3.2 billion. Kroger also has added new products such as DVD players and VCRs, distributed at low cost through Fred Meyer.

        “I feel it's a local company and it will come back when they get things figured out,” said shareholder Ivan Puckett of Sharonville, who since March 1999 has bought 600 shares of Kroger.

        Bob Braun of Miami Heights, who owns more than 3,000 shares of Kroger, agreed. “I'm confident it's a good company.”

        Kroger in 2000 expects to open 138 supermarkets, 11 warehouse stores and six multidepartment stores. Also, five Fred Meyer jewelry stores and 22 convenience stores are slotted.

        Some stores should open in the Greater Cincinnati market, Mr. Pichler said.

        In 2000, Kroger expects to save $260 million resulting from the Fred Meyer merger. A small example: By consolidating vendors of kitchen utensils sold at Kroger and Fred Meyer stores, the company saved $2 million annually.

        Kroger remains on target to increase earnings per share by 16 percent to 18 percent in each of the next three years.


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