Kroger Quarterly Earnings, Costco Special Dividend Payment A Surprise To Investors supermarkets

                 Just one day after Costco Wholesale announced the shelling out of $3 billion to shareholders ($7 per share on top of the regular $0.275) in a one time special dividend payment to be made on December 18, 2012, the Kroger Company reported a 62% increase in quarterly earnings representing the biggest quarterly gain in over two years.  Keep an eye on Kroger Marketplace:  Just last September a few Kroger Marketplace locations began selling brand name clothing items.  If more locations start doing the same, the additional revenue stream will make the company more attractive to investors.

The move by Costco stems from a possible change in the dividend tax rate charged to shareholders;  As early as January 1st the rate could more than double from 15% up to 40%.  Wal-Mart is also helping ease the burden on shareholders by moving the dividend payment date up from 1Q2013 to 4Q2012. 

Markets respond positively to the news

COST:NASDAQ was up ~5% on the day before gaining another +2% the following day.  The news was icing on the cake for Costco shareholders;  For the last quarter ended September 2, 2012 profit at Costco was up +27.4% to $609 million (on the year +16.9% to $1.709B), revenue +14.3% to $32.2B (on the year +11.5% to $99.2B).  Also in the last quarter, foot traffic up +4%, spending per customer up +2%.  Costco plans to open twice as many new stores next year than it did in 2012 (30 versus 16).  E-commerce sales up +90%.  Kirkland Signature branded products represent 15% of all in store items but account for 20% of product revenue.  Also boosting investor confidence is the fact that membership renewal rates were not affected by the recent increase in membership rates.

Kroger had a great last quarter

According to president Rodney McMullen, the increase in retail sales at Kroger (+3.7% excluding gas, +5.9% to $21.8 billion including gas) is a result of higher sales per store - "highest increase in unit movement since the second quarter of 2010" spurred by "higher sales per customer".

Kroger earnings were impacted by lower LIFO charge ($15.5m down from $61.6m 3Q2011), lower expense/revenue ratio (operating expenses include general/administrative/depreciation/rent exclude gas operations), higher quarterly FIFO profit (+$29 million quarterly),

Kroger 3Q2012:  capital expenditures down -5.0% to $473.5 million, net debt up +13.0% to $8.7 billion upping net debt/ adj ebitda ratio to 2.08 from 1.89.  Over the last four quarters Kroger returned $1.7 billion to shareholders in the form of dividends and sharebuybacks.

Kroger 4Q2012 guidance:  Sales growth excluding gas : 3.0% to 3.5%.  Full year earnings per share : $2.44 to $2.46 up from previous estimate of $2.35 to $2.42.

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