It's amazing what one can learn by looking at the earnings of a grocery store
It's amazing what one can learn about the state of the economy just by taking a close look at the earnings results of a grocery store chain. Kroger (KR) knocked the cover off of the ball last quarter, significantly beating analysts' earnings estimates and raising its guidance for the year. While I certainly am impressed with the job that Kroger's management has done, that's not what I found interesting about the results. Digging a little deeper than just the earnings per share and same store sales increases I found these two pearls:
1) Sales of the chain's cheap generic aka private label products were up during the quarter. Kroger's CEO specifically stated "We did see solid growth in Kroger corporate brand share in the first quarter," during the conference call. This means that consumers are feeling really pinched by the current high prices of food and gas, so much so that they are changing from buying their regular products to cheaper alternatives. This may be bad news for higher end, branded food companies and it certainly is more bad news for the already beaten up fancier grocery chains like Whole Foods (WFMI). Consumers cutting back like this is probably even a negative indicator for consumer spending as a whole.
2) It appears as though consumers are eating at home more and eating out less. According to the following article, "The gas, pharmacy and food discounts help draw customers trying to save gas as costs rise by combining trips, and Kroger also says people are eating more meals at home. Sales in its deli-bakery sections were strong, as were for its own store brands, which are usually priced lower than major brands, the company said." (see article: Kroger 1st-quarter profit up 15 percent). This is what I expected would happen and if true it is definitely baaaad news for the restaurant industry.
No position in any company mentioned.