Business

Harris Teeter helps Kroger’s earnings surge 23%

Kroger executives credited Matthews-based Harris Teeter, which it bought last year, with helping boost its results. Kroger’s fourth-quarter earnings surged 23 percent, the company reported Thursday.
Kroger executives credited Matthews-based Harris Teeter, which it bought last year, with helping boost its results. Kroger’s fourth-quarter earnings surged 23 percent, the company reported Thursday. dlaird@charlotteobserver.com

Kroger executives on Thursday credited Harris Teeter with helping boost its results, just over a year after the Cincinnati grocer acquired the Matthews-based chain.

The biggest grocery store chain in the country, Kroger reported better-than expected fourth-quarter earnings Thursday as it snatched up customers from competitors and built on existing business from Harris Teeter and Vitacost.com, a Florida-based e-commerce site selling vitamins and groceries that Kroger purchased in July.

Kroger didn’t break out Harris Teeter’s contribution numerically, but said the grocery chain helped reduce its debt and added more earnings per share than it had expected.

Kroger’s earnings in the fourth quarter that ended Jan. 31 surged 23 percent from the same period a year before to $518 million, or $1.04 a share. Bloomberg-surveyed analysts had estimated earnings of 90 cents a share.

Perhaps one of the biggest changes Harris Teeter customers have experienced since the merger is lower costs, Chuck Cerankosky, an analyst at Northcoast Research, told The Observer. Kroger said lowering prices helps keep it competitive.

“For the 10th year in a row, we lowered costs and reinvested those savings to improve our store experience. It is no surprise that Kroger captured more share of the massive food market also for the 10th year in a row,” Mike Ellis, Kroger’s president and chief operating officer, said in a conference call with investors.

In Charlotte, stiff competition within the grocery store industry means that oftentimes customers might see a Publix and Harris Teeter within a mile of one another. Citing the competitive Charlotte grocery landscape as an example, Mike Schlotman, Kroger’s chief financial officer, said the company assumes that competition in all its markets will only get fiercer.

“We built a model to defend our turf no matter where those folks try to come,” Schlotman said.

Though the Harris Teeter benefit isn’t spelled out in Kroger’s earnings reports, Cerankosky said, the benefits became apparent quickly.

For all Kroger stores open at least a year, excluding fuel, sales rose 6 percent in the fourth quarter, the strongest such gain since 2006 that was well above the 4.8 percent rise analysts had estimated. Quarterly revenue was $25.2 billion, in line with Wall Street expectations.

For all of 2014, Kroger’s revenue rose to $108.5 billion, an increase of 10.3 percent over the year before. Excluding fuel, revenue rose 12.9 percent. Earnings for 2014 totaled $1.73 billion, or $3.44 a share, the company said.

The Vitacost and Harris Teeter mergers, Kroger’s CEO Rodney McMullen said in the call Thursday, present “meaningful growth opportunities for Kroger.” Kroger now employs about 25,000 people more than it did at this time last year, McMullen said, and its current workforce totals about 400,000.

Harris Teeter has over 50 stores in the Charlotte area, where it employs about 7,000 people, said Danna Jones, a Harris Teeter spokeswoman. In 2014, the grocery chain opened nine new stores and anticipates adding another nine in 2015 in North Carolina, South Carolina and Virginia.

Kroger said it is already incorporating lessons learned from Harris Teeter, especially in terms of e-commerce.

“What Kroger likes to do when they buy a finely run retailer like Harris Teeter is don’t fix what isn’t broken,” Cerankosky said.

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