Tough times for consumers are good times for Ralphs' parent

Ralphs shoppers may lament the grocery chain’s new cutback on double-couponing, but the company’s parent today showed why the need for that particular promotional hook has lessened: Struggling consumers are coming through the doors for other reasons, including for cheaper store-brand goods -- and because they can't afford to eat out.

Kroger Co., which owns Ralphs, Kroger, Food 4 Less, Smith’s and other chains nationwide, reported quarterly earnings that beat expectations, sending its shares up 7% for the day.

Cincinnati-based Kroger told analysts during a conference call that it’s benefiting as more cash-strapped consumers turn to its less-expensive store-brand items in place of brand-name products.

What’s more, people apparently aren’t kidding when they say in consumer surveys that they’ve stopped going to restaurants.

Here’s what Kroger’s CEO, David Dillon, said on the call: "When we dissect some of our data and we look at our very best customers, [they] are buying both more Kroger brand and more national brand, not just more Kroger brand. And we believe that the way to read that is that there’s of course a shift from restaurants and other places to buying more food in our stores. We think there’s a shift to preparing food at home more."

That trend helped drive Kroger’s earnings to $386 million, or 58 cents a share, in the quarter ended May 24, up 15% from a year earlier. Sales jumped 11% to $23.1 billion. Analysts had expected profit of 55 cents a share.

The company said it expected full-year profit to be up as much as 12% from 2007. And in an economy where many companies will be hard-pressed to show much or any profit growth this year, Kroger’s double-digit promise rang Wall Street’s bell: The stock jumped $1.82, or 7%, to $27.82. It’s now up 4.2% this year, compared with a drop of 10.5% for the Standard & Poor’s 500 stock index.

Kinko's founder all shook up as FedEx drops the K-name

From Times staff writer Alana Semuels:

Kinko’s as Elvis?

That’s the anguished analogy that the copy chain’s founder, Paul Orfalea, makes in his belated comments on FedEx Corp.’s decision to drop the Kinko’s name.

FedEx, which bought Kinko’s in 2004 for $2.4 billion, announced on June 2 that it was changing the name of its stores from FedEx Kinko’s to FedEx Office, which "better describes the wide range of services available" at the stores, the company said.

This was, of course, not the first time an iconic corporate name has been junked. The dust bin of history is filled with once-revered retail names, including Marshall Field and Filene’s (both swallowed by Macy’s). And this year, Matsushita Electric Industrial Co., which produces Panasonic products, said it would change its name to Panasonic Corp. in the fall, dropping Matsushita, the name of its founder.

But Orfalea, who founded Kinko’s in 1970, said in a statement on Friday that FedEx’s decision "hit me hard."

He built Kinko’s from a single shop in Santa Barbara to a national chain with more than 1,000 locations and 25,000 employees. (Orfalea was called "Kinko" because of his frizzy red hair, and named the shop after that sobriquet.)

Orfalea, 60, stepped down as chairman of the firm in 2000, and has since spent much of his time donating money to various causes in Southern California.

In his mournful comments, Orfalea said that Kinko’s used to be about "shared power, shared profits, and shared knowledge," but that the Kinko’s he created "has been gone for a very long time."

Just like Elvis -- in more ways than one, he suggests.

Orfalea ended his statement remembering what John Lennon reportedly said when asked about the death of Elvis Presley in 1977: "Elvis died when he went in the army."

"As music historians note," Orfalea said, "Presley entered the army [in 1958] as a rock and roller, but returned as a crooner and movie star. The rebellious independence Lennon loved in Elvis was gone long before the King died."

Hmmm. So Kinko’s, like Elvis, had its soul sucked out of it? Sounds like a good subject for a biz book.

Sure enough, Orfalea notes that’s he’s at work on a tome to be titled, "Kamelot: Kinko’s Brief Shining Moment in American Business History."

He says: "We want more entrepreneurs to know how Kinko’s became so successful with its unconventional partnership structure, why the corporate culture was unique, how we listened to our counter folks to focus on customers, and ultimately how the remarkable in-store and corporate culture and innovation was lost."

For book marketing purposes, FedEx might just have done Orfalea a favor.

Photo: Elvis gets his first Army haircut at Fort Chaffee, Ark., in March 1958./Associated Press

Five finger discount: A profit heist at 99 Cents Only Stores

Somebody stole away 99 Cents Only Stores Inc.’s quarterly profit -- literally.

The City of Commerce discount retailer said Wednesday that it lost $4.4 million, or 6 cents a share, in the fiscal fourth quarter ended March 29 because of an unexpected jump in thefts at some of its stores.

So-called shrink expenses -- losses tied to an unplanned drop in product inventories -- were $5.5 million greater than the company had expected for the quarter, Chief Executive Eric Schiffer said in a conference call with analysts and investors.

He said the firm believed that "unexpected theft-related shrink is largely responsible" for the jump in overall shrink costs, which also can stem from spoiled or scrapped goods.

Analysts had expected a modest profit in the latest quarter, betting that the company’s bargain-priced food and general merchandise would attract more consumers who are struggling to cope with the surge in gasoline prices this year.

The surprise loss triggered a sell-off in the retailer’s shares in after-hours trading: The stock fell to $7.20, after rising 27 cents to $7.89 in regular trading.

99 Cents Only Stores, founded in 1982 by David Gold, pioneered the single-price retail concept. Everything in the now 265-store chain is priced at 99 cents or less.

If you’ve been in a store, or even driven by one, you know what the merchandise mix looks like. It’s a lot of day-to-day stuff you may need -- and a lot of stuff that fits some people's definition of junk.

Sales totaled $1.2 billion in the last fiscal year, $290 million of it in the last quarter. But the company’s earnings picture has dimmed since 2003, and management has struggled with accounting troubles that have strained its credibility with Wall Street.

With the sudden surge in theft losses, "It’s a management credibility issue again," said Joan Storms, who follows the company for Wedbush Morgan Securities in L.A.

Schiffer said on the conference call that the company believed that the theft troubles were "fixable." He and other executives said the losses were concentrated in 29 stores, and that "a lot of them, not all, but a lot of them are in one geographic area."

Where? Schiffer wouldn’t say, except that "it’s not Los Angeles." The company has stores across California and in Arizona, Nevada and Texas.

As for the culprits, the company wasn’t specific in the conference call about whether the thefts were believed to be primarily by customers or by employees. But it sounded like an inside job. At one point during the call, Schiffer appeared to provide a motive for insiders.

"It’s well known throughout the company that we are in the process of taking our existing management and putting them through training, upgrading the staff out there," he said.

"And we always say that we hope all of them are able to make the transition. I don’t know the effect on people who think that they may not be able to make the transition during these current economic times."

That conjures visions of pallets stacked with shampoo, candy and tchotchkes heading out the back door.

Schiffer and other executives tried to put the best face on the quarter’s results, noting that sales at stores open at least one year were up 1.5% -- the 10th consecutive quarterly increase -- even as some retailers have reported lower sales.

In theory, 99 Cents Only ought to be packing in the customers as consumers' incomes are squeezed in a tough economy.

Now if they could only control what’s being packed out of the stores.

Photo: Patrons shop for fresh produce at a 99 Cents Only store in Los Angeles in March. Stefano Paltera/Los Angeles Times

Wal-Mart returns to darling status on Wall Street

Wall Street is back in love with Wal-Mart Stores in a big way.

The retailer's shares so far today are up 75 cents to $54.89 -- and touched their highest since November 2004 -- after the company raised its estimate of first-quarter earnings to a range of 74 to 76 cents a share, from a previous range of 70 to 74 cents.

The shares are up nearly 16% year to date. This for a stock that had been stuck in neutral for the last three years, mostly trading between $42 and $51. The shares were down 11.4% in 2005, down 1.3% in 2006 and up just 2.9% last year.

Wal-Mart said its same-store sales rose 1.1% in March and were up 0.7% excluding its gasoline sales.

Those numbers may not look like much, but they're far better than what many other retailers are reporting. Target said same-store sales slid 4.4% last month; J.C. Penney said its sales were off 12.3%.

An early Easter hurt retailers' results in March, but the weakness in sales clearly reflects the troubled economy's squeeze on consumers.

And in a squeeze, Americans are turning back to Wal-Mart for its low prices -- including on electronics such as flat-panel TVs. The company said its U.S. stores "continued to generate triple-digit comparable sales in flat-panel TVs . . . as well as double-digit growth rates in laptop computers, video games and digital cameras."

Wall Street figures Wal-Mart will earn about $3.40 a share this year, up from $3.13 last year. If the $3.40 estimate is right on, the stock's price-to-earnings ratio is about 16. That makes it more expensive than shares of many retailers, but it's a far cry from the valuation investors gave Wal-Mart in the late 1990s.

Hard to believe, but Wal-Mart's stock had a price-to-earnings ratio of nearly 60 at the end of 1999 -- the last gasp of the growth-stock mania of that decade.

Photo: Carolyn Barnard walks with niece Kiya Barnard and son Daren outside a Wal-Mart superstore in Turnersville, N.J. Mel Evans /Associated Press

Posted April 10, 2008