Kroger: Q1 Sales Top Estimates, Digital Sales Growing
The Kroger Company surpassed analysts’ projections in reporting first-quarter sales of $45.3 billion, up from $45.2 billion the previous year, fueled by the better-than-expected performance of its grocery business and increased household penetration.
“Customers continue to seek value and are shopping with us differently based on their financial situations. Spending from premium and mainstream customers continues to be strong,” CEO and chairman Rodney McMullen told investors during today’s earnings call.
He continued, “Mainstream households drove our overall household growth, and we improved our share of wallet with premium customers who are deepening their loyalty, spending more in our fresh departments and enjoying more premium products such as Private Selection.”
In the quarter ended May 25, the Ohio-based grocery giant’s gross margin was 22.4% of sales. The FIFO gross margin rate, excluding fuel, decreased 7 basis points compared to the same period last year attributable to lower pharmacy margins and increased price investments.
The LIFO charge for Q1 was $41 million compared to $99 million in the prior-year period due to lower inflation expectations for the current year. Meanwhile, operating, general and administrative expenses increased 22 basis points (excluding fuel and adjustment items) driven by planned investments in associate wages and increased cost incentive programs.
Kroger achieved greater wallet share by introducing 346 new private label items and launching Field & Vine – a new brand of high-quality, regionally grown berries – during the first quarter. On the call, McMullen told investors the company is identifying new supply sources, using more effective promotions and improving product mix, which is contributing to further margin improvements.
The grocer also saw significant growth in its digital shopping experience, as digital sales increased 8% and delivery and pickup combined for double-digit growth. Additionally, the company increased digitally engaged households by 9% and achieved a new record for quarterly pickup fill rate.
To improve its delivery service, Kroger closed three spoke locations to reallocate capacity closer to its automated fulfillment centers where the company has higher customer density and better order level profitability.
“We remain confident that our Kroger delivery network provides a differentiated customer experience and will continue to be a key pillar of our digital growth strategy,” McMullen told investors, adding that the closures will not impact Kroger’s FCs or other spoke locations.
Executives did not provide an update on Kroger’s proposed $24.6 billion mega-merger with Albertsons during today’s call. Most recently, the two chains added more locations and assets to an updated version of their definitive divestiture agreements with C&S wholesalers.
Looking ahead, Kroger has reaffirmed its FY 2024 guidance, expecting identical sales growth without fuel of 0.25% to 1.75%, adjusted FIFO operating profit of $4.6 to $4.8 billion, and adjusted net earnings per diluted share of $4.30 to $4.50.
“The long-term investments we have made to strengthen and diversify our model enable us to manage economic cycles and give us the confidence to deliver on our full year outlook. By delivering value for customers, Kroger remains well-positioned to generate attractive and sustainable returns for our shareholders,” said McMullen.
