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Kroger’s net and ID sales rebound in Q1

CEO Rodney McMullen cites strong execution in inflationary environment

Russell Redman

June 16, 2022

5 Min Read
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During the first quarter, Kroger opened new Ocado-automated customer fulfillment centers in Pleasant Prairie, Wis., and Dallas to fill online grocery delivery orders.The Kroger Co.

The Kroger Co. posted robust fiscal 2022 first-quarter sales after cycling pandemic-driven growth a year earlier, topping Wall Street’s earnings-per-share forecast and lifting its full-year outlook.

For the first quarter ended May 21, net sales came in at $44.6 billion, up 8% from $41.3 billion a year ago, Cincinnati-based Kroger said Thursday. That marked a rebound from a 0.6% dip in the 2021 quarter, which reflected a tough year-over-year comparison with a double-digit gain from COVID-fueled consumer demand. Excluding gasoline, sales in the 2022 quarter increased 3.8%.

Similarly, identical sales excluding gas climbed 4.1% for the 2022 first quarter, bouncing back from a 4.1% decrease in the 2021 quarter that followed a 19% surge a year earlier.

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“Kroger achieved strong first-quarter results as we successfully executed on our strategy of ‘Leading with Fresh and Accelerating with Digital. We are incredibly proud of our associates, who continue to put the customer at the center of everything we do,” Chairman and CEO Rodney McMullen said in a statement. “Our team is doing an outstanding job managing costs in an inflationary environment, which is allowing us to continue to invest in our associates while providing our customers the freshest food at affordable prices when and where they need it.”

Related:Kroger kicks off grocery delivery in South Florida

Among ID sales results, fresh department sales advanced 5.2% in the first quarter. The nation’s largest floral retailer, Kroger noted that the period included the two highest single-day floral sales in its history, led by Valentine's Day and Mother's Day. The supermarket giant also certified 355 new stores under its accelerated “End-to-End Fresh Produce” initiative, which gave a boost to Q1 fresh sales.

Kroger’s private-label portfolio, dubbed “Our Brands,” tallied a 6.3% ID sales gain in the quarter. The grocer said it launched 239 new Our Brands products, including fresh items for the summer season. On an ID basis, digital sales declined 6.3% year over year, with difficult comparisons from increases of 16% in the 2021 quarter and 92% in the 2020 quarter.

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Also during the 2022 first quarter, Kroger opened two new Ocado-automated customer fulfillment centers (CFC) — 350,000-square-foot facilities in Pleasant Prairie, Wis., and Dallas — as well as “spoke” facilities in Columbus, Ohio; Louisville, Ky.; and Miami that serve as last-mile cross-dock sites for other CFCs. The Pleasant Prairie CFC fills Kroger Delivery online grocery orders for customers in Wisconsin, northern Illinois and northwest Indiana, while the Dallas CFC serves the Dallas-Fort Worth area.

Related:Kroger goes live with online farmers market

Kroger said its workforce development efforts in Q1 included the launch of Microsoft Teams Rooms in supermarket locations to improve associate collaboration and training, plus a national hiring drive — via in-person and virtual events  — with job openings in retail, e-commerce, manufacturing, supply chain, merchandising, logistics, corporate, pharmacy and health care.

“We are delivering everyday value through personalized experiences, trusted Our Brands products, data-driven promotions, and seamless e-commerce solutions,” McMullen added. “Looking ahead, we are well-positioned to continue delivering for our customers, investing in our associates and driving sustainable returns for shareholders.”

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At the bottom line, Kroger reported 2022 first-quarter net earnings of $664 million, or 90 cents per diluted share, compared with $140 million, or 18 cents per diluted share, a year ago. Excluding $410 million in adjustments for investment losses and the Home Chef subsidiary, adjusted net earnings came in at $1.07 million, or $1.45 per diluted share, versus $918 million, or $1.19 per diluted share, in the prior-year period.

Analysts, on average, had projected adjusted EPS of $1.30, with estimates ranging from $1.16 to $1.51, according to Refinitiv.

The first-quarter performance led Kroger to increase the top and bottom ends of its fiscal 2022 adjusted EPS and ID sales forecast, according to Chief Financial Officer Gary Millerchip. When reporting fiscal 2021 Q4 results in March, Kroger had projected fiscal 2022 adjusted EPS of $3.75 to $3.85 and ID sales growth of 2% to 3% excluding fuel.

“Our relentless focus on executing our strategy and sustained food-at-home trends led to a strong first quarter. The Kroger team is effectively navigating a dynamic retail environment,” Millerchip stated. “Our diverse and resilient business model gives us confidence to raise our full-year guidance. We now expect identical sales without fuel to be in the range of 2.5% to 3.5%, adjusted FIFO operating profit of $4.3 billion to $4.4 billion, and adjusted net earnings per diluted share to be in the range of $3.85 to $3.95. We remain confident in our ability to deliver sustainable earnings growth and total shareholder returns of 8% to 11% over time.”

Before Kroger’s Q1 report, Wall Street’s consensus estimate was for fiscal 2022 adjusted EPS of $3.84, with projections running from $3.75 to $4.12, according to Refinitiv.

Despite the solid first-quarter performance by Kroger, CFRA Research analyst Arun Sundaram issued a guarded outlook for the company, citing "expected margin pressure due to price competition, product, transportation, wage inflation and fading at-home demand tailwinds" in a research note on Thursday.

"Kroger raised its top- and bottom-line outlook for fiscal year 2022, although this was largely expected by investors. The raised guidance reflects the strength of F1Q but doesn't necessarily imply a stronger outlook for the remainder of the fiscal year," Sundaram wrote, adding that CFRA is maintaining its "sell" rating on the grocer. "Gross margin headwinds could strengthen with price competition increases and continued inflationary pressures. Lower fuel margins, less COVID-19 vaccine benefits, and moderating food-at-home demand will also likely be headwinds this year. Overall, we think it is a good time for investors to take profits considering Kroger shares have outperformed peers and the broader market year-to-date."

About the Author

Russell Redman

Senior Editor
Supermarket News

Russell Redman has served as senior editor at Supermarket News since April 2018, his second tour with the publication. In his current role, he handles daily news coverage for the SN website and contributes news and features for the print magazine, as well as participates in special projects, podcasts and webinars and attends industry events. Russ joined SN from Racher Press Inc.’s Chain Drug Review and Mass Market Retailers magazines, where he served as desk/online editor for more than nine years, covering the food/drug/mass retail sector. 

Russell Redman’s more than 30 years of experience in journalism span a range of editorial manager, editor, reporter/writer and digital roles at a variety of publications and websites covering a breadth of industries, including retailing, pharmacy/health care, IT, digital home, financial technology, financial services, real estate/commercial property, pro audio/video and film. He started his career in 1989 as a local news reporter and editor, covering community news and politics in Long Island, N.Y. His background also includes an earlier stint at Supermarket News as center store editor and then financial editor in the mid-1990s. Russ holds a B.A. in journalism (minor in political science) from Hofstra University, where he also earned a certificate in digital/social media marketing in November 2016.

Russell Redman’s experience:

Supermarket News - Informa
Senior Editor 
April 2018 - present

Chain Drug Review/Mass Market Retailers - Racher Press
Desk/Online Editor 
Sept. 2008 - March 2018

CRN magazine - CMP Media
Managing Editor
May 2000 - June 2007

Bank Systems & Technology - Miller Freeman
Executive Editor/Managing Editor
Dec. 1996 - May 2000

Supermarket News - Fairchild Publications
Financial Editor/Associate Editor
April 1995 - Dec. 1996 

Shopping Centers Today Magazine - ICSC 
Desk Editor/Assistant Editor
Dec. 1992 - April 1995

Testa Communications
Assistant Editor/Contributing Editor (Music & Sound Retailer, Post, Producer, Sound & Communications and DJ Times magazines)
Jan. 1991 - Dec. 1992 

American Banker/Bond Buyer
Copy Editor
Oct. 1990 - Jan. 1991 

This Week newspaper - Chanry Communications
Reporter/Editor
May 1989 - July 1990

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