Kroger sees earnings, digital sales spike in first quarter

Citing a strong beginning for its Restock Kroger strategic plan, The Kroger Co. surged past Wall Street’s earnings expectations for its fiscal 2018 first quarter.

Kroger on Thursday also reported revenue and same-store sales gains for the quarter — including a jump in digital sales — and raised the low end of its full-year earnings guidance.

For the quarter ended May 26, the supermarket giant posted net income of $2.03 billion, or $2.37 per diluted share, compared with $303 million, or 32 cents per diluted share, a year earlier. Earnings in the period reflect Kroger’s $2.15 billion sale of its convenience store business to EG Group in April.

Adjusted net earnings, which exclude the convenience store sale and other items, came in at $626 million, or 73 cents per diluted share, up from $546 million, or 58 cents per diluted share, a year ago.

Analysts, on average, had forecast adjusted earnings per share of 63 cents, with estimates ranging from a low of 56 cents to a high of 67 cents, according to Thomson Reuters.

Kroger noted that diluted net EPS edged past its projections because of a “great start” to Restock Kroger, its sweeping initiative to enhance the grocery customer experience across channels. Contributing to that effort were space optimization and process changes that tightened cost controls and boosted alternative streams of revenue, the company said.

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"Restock Kroger is off to a fantastic start. Everything we do supports our customers engaging seamlessly with Kroger,” Chairman and CEO Rodney McMullen said. “Kroger is creating the future of retail by innovating our core business and adding exciting partnerships like Ocado and our planned merger with Home Chef. We are on track to generate the free cash flow and incremental FIFO operating profit that we committed to in Restock Kroger. We are confident in our ability to deliver on our plans for the year and our long-term vision to serve America through food inspiration and uplift."

On the revenue side, first-quarter sales totaled $37.53 billion, up 3.4% from $36.29 billion in the prior-year period. Kroger said the sales gain was 2.3% excluding fuel and 2.8% excluding both fuel and the sale of the convenience store business. Identical-supermarket sales rose 1.4%, excluding gasoline.

Kroger said that, going forward, it will calculate identical-store sales in a manner that’s more inclusive of its business units, including Kroger Specialty Pharmacy and ship-to-home solutions. The company said this method better aligns with the way industry peers report and will provide a more accurate performance gauge as Restock Kroger moves forward. Under the new measure, Kroger's identical sales without fuel grew 1.9% in the first quarter.

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Among the quarter’s revenue highlights, digital sales soared 66%, according to Kroger. The company said it also achieved its highest-ever dollar share for its private brands, with the Simple Truth and Simple Truth Organic labels seeing double-digit increases.

For the full fiscal year, Kroger forecasts GAAP earnings at $3.64 to $3.79 per diluted share, compared with $3.59 to $3.79 previously. Adjusted EPS has been raised to $2.00 to $2.15 per diluted share from $1.95 to $2.15.

Wall Street’s consensus forecast is for adjusted EPS of $2.07, with projections running from a low of $1.97 to a high of $2.19, according to Thomson Reuters.

Under its updated calculation, Kroger pegs identical sales growth at 2% to 2.5% for 2018. The company projects $3 billion in capital expenditures.

Overall, Kroger operates 2,779 retail food stores under more than 20 banners, including traditional supermarket, multidepartment, price-impact warehouse and marketplace formats.