Kroger cites top-line sales strength in fiscal 2021

The Kroger Co. wrapped up fiscal 2021 with solid net and identical sales growth in the fourth quarter, topping the high end analysts’ earnings-per-share projections for both the quarter and the year.

Cincinnati-based Kroger said Thursday that, for the fourth quarter ended Jan. 29, net sales totaled $33.05 billion, up 7.5% from $30.74 billion a year earlier. Excluding fuel, sales advanced 3.7%. Identical sales without fuel rose 4% and were up 14.6% on a two-year stack, the company reported. The gains built growth of 6.4% (10.7% excluding fuel) in net sales and 10.6% (excluding fuel) in identical sales for the fiscal 2020 fourth quarter.

Overall fiscal 2021 net sales came in at $137.89 billion, up 4.1% from $132.5 billion in fiscal 2020. Backing out gasoline sales, Kroger’s 2021 sales edged up 0.2%. Identical sales excluding fuel increased 0.2% and were up 14.3% over two years. Kroger achieved that growth after adding $10 billion to its top line in fiscal 2020, when the retailer tallied growth of 8.4% (14.2% excluding fuel) in net sales and 14.1% (excluding fuel) in identical sales.

'The strength in our top-line sales in 2021 demonstrates our ability to meet our customers no matter how they choose to engage with us,' Kroger's Rodney McMullen said.

“Our strategy of leading with fresh and accelerating with digital propelled Kroger to record performance in 2021, on top of record results in 2020. We are incredibly proud of our associates who continue to deliver for our customers through the pandemic,” Kroger Chairman and CEO Rodney McMullen told analysts in a webcast on Thursday.

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“During 2021, our team delivered for all stakeholders by, first of all, achieving positive year-over-year identicals without fuel against very strong identicals last year and a two-year stack of 14.3%,” McMullen said. “Also, by connecting with customers through expanding our seamless ecosystem and remarkable consistent delivery of full fresh and friendly customer experience for everyone, plus investing more than ever before in our associates to raise our average hourly rate to $17 and our average hourly rate to over $22, when you include compensation and benefits as well.”

He also noted that the company’s Kroger Health arm has administered almost 11 million doses of the COVID-19 vaccine.

E-commerce sales declined by 13.3% in the 2021 fourth quarter and by 3.2% for the full year, in the wake of explosive growth of 118% in the 2020 fourth quarter and 116% for the year. On a two-year stack, digital sales rose 105% through the close of fiscal 2021 fourth quarter and 113% through the year-end.

“The strength in our top-line sales in 2021 demonstrates our ability to meet our customers no matter how they choose to engage with us, whether it’s in-store or online. At the same time, we are actively encouraging customers to engage with us on our digital platforms, even when shopping in-store. That’s because when a customer engages with us digitally, they spend more with Kroger in all modalities,” McMullen said.

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Kroger's digital sales have climbed 105% over two years through the end of fiscal 2021, propelled by a growth surge amid the pandemic.

“We continue to attract new customers to our digital platforms. During the quarter, we saw new seamless pickup and delivery household acquisitions increase 25% compared to the third quarter. We remain committed to doubling digital sales and profitability by 2023, which was announced in 2021,” he explained, adding, “We do not expect digital growth will be linear, especially as we cycle the sales spike in 2020 and customers become more comfortable shopping in-store again.”

On the grocery side, Kroger expanded its Our Brands private-label portfolio with 660 new products during fiscal 2021, including 72 new items in the fourth quarter. The year also marked a milestone for Kroger’s Home Chef meal-kit business, McMullen noted.

“Our Brands continues to resonate strongly with customers and maintains a culture of innovation, launching over 660 new items during the year. More than half of those new items were within our Simple Truth and Private Selection portfolios,” he said. “We accelerated Home Chef’s incredible milestone of becoming a billion-dollar brand — our fourth greater-than-$1 billion brand, which is pretty special.”

Kroger also reported the completion of the first phase of its End-to-End Fresh in-store program and finished converting specialty cheese shops under the Murray’s Cheese brand in 260 stores.

“Kroger is leading with fresh. Our fresh departments outpaced total company identical sales excluding fuel during the fourth quarter. Kroger remains the No. 1 retailer in many exciting areas, such as specialty cheese, sushi and floral. As the world’s largest florist, we sold over 76 million floral stems for Valentine’s Day alone,” said McMullen.

“We’ve completed the initial test phase of our End-to-End Fresh initiative, focused on bringing more days of freshness to our customers, and are confident in its scalability and with plans to expand to targeted stores across the country,” he added.

McMullen noted that Kroger has raised its average hourly wage for associates to $17, a figure that exceeds $22 including compensation and benefits.

Chief Financial Officer Gary Millerchip also singled out fresh offerings as a sales driver. “Kroger reported identical sales excluding fuel at 4%, our strongest quarter of the year, with fresh departments leading the way,” he said in the analyst call.

Private brands and gasoline, boosted by fuel rewards, are helping Kroger stand out to consumers as well, according to Millerchip.

“Our Brands is also an important differentiator for Kroger in this environment, offering customers an unmatched combination of great quality and great value. Our strategic approach is helping our customers manage their grocery budgets more effectively and is allowing Kroger to maintain a strong price position relative to our key competitors,” he said. “Fuel also remains an important part of our overall value proposition for our customers, and we continue to invest in our fuel program in 2021. Customers that redeem fuel points spend on average four times more at Kroger and visit four times more frequently. Our investment in fuel rewards, which is reflected in our supermarket gross margin, also helps customers stretch their dollars further and allowed us to achieve gallon growth of 5% in the fourth quarter, outpacing market growth.”

At the bottom line, Kroger posted fiscal 2021 fourth-quarter net income (attributable to the company) of $566 million, or 75 cents per diluted share, compared with net loss of $77 million, or 10 cents per share, a year ago. For the full year, net earnings (attributable to Kroger) came in at $1.66 billion, or $2.17 per diluted share, versus $2.56 billion, or $3.27 per diluted share, in fiscal 2020.

On an adjusted basis, Kroger recorded net income of $686 million, or 91 cents per diluted share, for the fourth quarter and $2.8 billion, or $3.68 for fiscal 2021, compared with fiscal 2020 adjusted results of $630 million (81 cents diluted EPS) in the fourth quarter and $2.74 billion ($3.47 diluted EPS) for the full year.

Analysts, on average, had forecast Kroger’s fiscal 2021 fourth-quarter adjusted EPS at 74 cents, with estimates running from 66 cents to 84 cents, according to Refinitiv. The full-year consensus projection was for adjusted EPS of $3.52, with a range of $3.45 to $3.64.

In its fiscal 2022 outlook, Kroger projects adjusted EPS of $3.75 to $3.85 and 2% to 3% growth in identical sales (excluding fuel). A year ago, the company had expected a decline in 2021 ID sales. Analysts estimate Kroger’s 2022 adjusted EPS at $3.45 on average, with estimates ranging from $3.14 to $3.80, according to Refinitiv.

“As we look to 2022, we expect the momentum in our business to continue, and we have confidence in our ability to navigate a rapidly changing operating environment,” McMullen said. “We are leveraging technology, innovation and our competitive moats to build lasting competitive advantages. Our balanced model is allowing us to deliver for shareholders, invest in our associates, continue to provide fresh, affordable food for our customers and support for our communities.”