February 25, 2021

Kroger’s Profit Falls Short of Analyst Estimates

“The sluggish economy continues to strain household budgets while increasing consumer anxiety. In fact, customers tell us their expectations for the economy are more pessimistic now than at any time this year,” David Dillon, the chief executive, said in a conference call.

While shoppers are visiting more often, they are spending less per trip by buying fewer items, shifting from national brands to private-label products, and avoiding expensive produce, executives said.

Kroger said it earned $280.8 million, or 46 cents a share, in the period, up from $261.6 million, or 41 cents a share, a year earlier. Sales in the period, which ended Aug. 13 and was the second quarter of Kroger’s fiscal year, rose 11.5 percent, to $20.9 billion from $18.8 billion. Same-store sales rose 5.3 percent, Kroger said.

Excluding a tax adjustment in the most recent quarter, Kroger earned 41 cents a share, falling short of the 43 cents expected by analysts.

Shares of Kroger, which is based in Cincinnati, fell $1.33, or 5.7 percent, to $22.02.

Kroger, which has been gaining market share, said it used a tax benefit in the quarter to make price reductions earlier than planned.

That contributed to the profit miss and intensified worries that Kroger could reignite the industry’s profit-sapping price war of recent years.

Kroger and its rival Wal-Mart, which sells more groceries than any other food retailer in the nation, largely set prices for the industry.

“I don’t think either one of them has any incentive to launch a price war,” said Walter Stackow, senior research analyst at Manning Napier, which holds Kroger shares.

Scott Mushkin, a Jefferies Company analyst, said Kroger’s results and the commentary around consumer behavior did not bode well for Safeway and SuperValu.

“This is not a good sign for them,” Mr. Mushkin said. Price competition could heat up again if food sellers simply decide to begin absorbing some of the higher food costs they had been passing through to shoppers, he said.

Kroger raised its full-year growth forecast for identical supermarket sales because of the healthy second-quarter number, and repeated its forecast for full-year earnings at the top of a range of $1.85 to $1.95 a share.

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Fair Game: U.S. Has Binged. Soon It’ll Be Time to Pay the Tab.

SAY this about all the bickering over the federal debt ceiling: at least people are talking openly about our nation’s growing debt load. This $14.3 trillion issue is front and center — exactly where it should be.

Into the fray comes a thoughtful new paper by Joseph E. Gagnon, a senior fellow at the Peterson Institute for International Economics, which studies economic policy. Written with Marc Hinterschweiger, a research analyst there, the report states plainly: “That government debt will grow to dangerous and unsustainable levels in most advanced and many emerging economies over the next 25 years — if there are no changes in current tax rates or government benefit programs in retirement and health care — is virtually beyond dispute.”

The report then lays out a range of outcomes, some merely unsettling, others downright scary, that face us as a nation if we continue down the big-spending path we are on.

The report, “The Global Outlook for Government Debt Over the Next 25 Years: Implications for the Economy and Public Policy,” arrives when our debt as a percentage of gross domestic product is around 65 percent and rising fast. Much of the recent increase, up from 43 percent in 2007, is the result of the panic of 2008 and the ensuing recession, when the government stepped in to mitigate the damage.

The authors do not suggest that policy makers should hurry to raise taxes or cut spending right now. They acknowledge that the economic recovery is still fragile and propose that lawmakers wait to implement budget cuts currently under discussion until 2013 to 2015. Additional cuts would ideally go into effect in 2016.

What needs to be done now is to design a long-term plan to reduce fiscal deficits in the future. The authors contend that such a program would “reassure the markets, keep interest rates low and instill greater confidence and certainty about future tax and spending policies, thereby encouraging businesses to commit their resources to job-creating investment projects.”

An intriguing aspect of their analysis is how it views the rising tide of debt around the world from a historical perspective. For so many countries to be groaning under so much debt at the same time is unusual, the authors say. More typical are the somewhat contained debt crises, like in Latin America in the 1980s or in Russia in 1998. While both of those episodes reverberated beyond the countries from which they sprang, today’s debt problems are far more widespread. And, as a result, more worrisome. 

The simultaneous buildup of very large public deficits and debt positions in virtually all of the advanced high-income countries “is a new element at work in the global economy,” the report says.

“It is unique in peacetime for so many countries to have so much debt,” Mr. Gagnon said in an interview last week. But he added that global capital markets, and the access to lenders that these markets provide, probably mute the ill effects of this simultaneous borrowing binge. 

The paper assesses the potential consequences of a more pervasive debt crisis, one involving a number of countries in the same perilous position at the same time. The authors also consider the impact that future interest rate increases may have on these debt loads and provide separate estimates of how debt levels would grow under differing circumstances. They incorporate into these estimates expected growth rates in various regions as well as rising health care costs and retirement obligations. The analysis uses figures from the International Monetary Fund and the Organization for Economic Co-operation and Development.

Some of the results are surprising. For example, the study rebuts the commonly held notion that the outlook for Europe is worse than for the United States, as far as debt levels and obligations are concerned. This is because some euro zone countries have already begun to deal with their fiscal problems, Mr. Gagnon explained. “They’ve made some changes to long-run pensions, such as raising retirement ages,” he said, “and they’ve already made spending cuts and tax increases.”

Another surprise in the study: emerging markets are in much better shape, Mr. Gagnon said, than he had anticipated when he began the project.

Now, to the numbers, all of which are based on the status quo in tax rates and government obligations relating to health care and retirement.

You sitting down?

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2 Korean Search Engines File a Complaint Against Google

The NHN Corporation, which owns Naver, the largest search portal, and Daum, the No. 2 portal, asked South Korea’s trade commission to investigate whether Google had improperly maneuvered to have Android preinstalled on most smartphones being sold in the country.

Android-based smartphones use Google as their default search engine, and NHN said in a statement that the preloading of Android had made it “virtually impossible to switch to another option” for Internet searching.

Worldwide, Android is expected to become the preferred operating system on smartphones. “For the vendors who made Android the cornerstone of their smartphone strategies, 2010 was the coming-out party,” Ramon Llamas, a senior research analyst with the International Data Corporation, said in a recent report.

“This year will see a coronation party as these same vendors broaden and deepen their portfolios to reach more customers, particularly first-time smartphone users,” the report said.

In its complaint, NHN said that Google, “through a marketing partnership with major smartphone producers,” had unfairly created “a new ecosystem” by offering the Android system free as a way to control the market.

Google denied the accusations, saying in a statement that “carrier partners are free to decide which applications and services to include on their Android phones.”

South Korean consumers are famous as early adopters, and most new phone buyers here are opting for smartphones. About two-thirds of all smartphones sold in South Korea last year were Android-based.

The Korea Communications Commission said last month that more than 10 million smartphones were registered in South Korea. In December 2009, 800,000 smartphones were in use.

Telecommunications analysts expect the number of smartphones in use in South Korea could reach 20 million by the end of the year.

Naver and Daum currently control more than 70 percent of the mobile Internet search market in South Korea, and it is technically possible to switch to their search applications on Android phones. That switch is not easy, however, and Naver and Daum said their applications could not be purchased as a preloaded option.

“Google, which has a 1 to 2 percent share in the fixed-line Internet search market here, has been the only program preloaded on smartphones,” Lee Byung-sun, a spokesman for Daum, told the Yonhap news agency in Seoul. “That can’t be the result of mobile carriers’ and manufacturers’ free choice.”

A longtime Google rival, Microsoft, lodged a similar antitrust complaint last month with the European Commission, asserting that Google was engaging in anticompetitive practices, both on the Web and in smartphone software. The European complaint accused Google of hampering Microsoft applications in connection with videos on YouTube, which is owned by Google.

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