Kroger Reports Increase in Earnings, But Stock Is Hampered by Falling Gas Prices

Kroger Co. (KR), one of the nation’s largest retail grocery chains, reported an increase in both profits and earnings today, but the company has experienced a decline in sales in its gas station outlets.

Kroger reported earnings totaling $435.1 million, or $0.66 per share, for the first quarter of fiscal 2009 ended May 23, 2009, compared with net earnings of $386.0 million, or $0.58 per share, in the same period last year.

Kroger Chairman and CEO David B. Dillon attributed the improvement to a focus on lower prices, good service, and stores that are both innovative and convenient.

I think Kroger is doing all the right things, but the company has been hurt by dropping gas prices. In addition to operating 2475 supermarkets and department stores in 31 states, Kroger also operates 764 convenience stores, 387 fine jewelry stores and 798 supermarket gas stations.

In the first quarter, the average retail price for a gallon of gas sold at Kroger’s fuel outlets was 41% lower than it was in the first quarter last year. With the drop in gas prices, total sales for Kroger were down slightly compared with the same period last year, $22.8 billion compared with $23.1 billion.

I currently rate KR a D, or sell.

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