Kroger Beats Expectations in Q1; Full-Year Guidance Raised

Behind what officials said was strong execution, cost controls and record alternative revenues, The Kroger Co. exceeded its own guidance and Wall Street’s expectations for its financial performance in its fiscal first quarter.

In the period, which lapped much of last year’s COVID-aided sales boom and ended May 22, the Cincinnati-based food retailer said revenues totaled $41.3 billion and non-fuel comps decreased by 4.1%. Analysts had expected approximately $39.9 billion in revenue and a 6.7% comp decline. Adjusted earnings per share in the quarter of $1.19 beat consensus expectations of 99 cents. Gross margins as a percent of sales totaled 22.6%, slightly less than the 23% Wall Street estimated.

The performance promoted Kroger to raise fiscal year guidance on its comparable-store sales and EPS.

“Kroger’s strong execution delivered identical sales results in the first quarter that exceeded our original expectations. Customers are responding to the investments we have made in digital, as evidenced by our triple-digit growth in digital sales since the beginning of 2019. We were disciplined in driving costs out of the business, and we achieved record growth in Kroger's alternative profit business, demonstrating the power and attractiveness of our long-term model. “

When it reported fourth quarter results in early March, Kroger forecast fiscal year comps ranging between -5% and -3%, or a 9.1% to 11.1% two-year comp stack that normalized the effects of 2020’s unusual sales boost. Based on its first quarter performance, Kroger is now expecting fiscal-year comps to range between -4% and -2.5%, or a two-year stack of 10.1% to 11.6% comp increases. Its earnings per share guidance was raised to a range of $2.95 to $3.10 from previous expectations of $2.75 to $2.95.

Total company sales were $41.3 billion in the first quarter, compared to $41.5 billion for the same period last year. Excluding fuel, sales decreased 4% compared to the same period last year.

The FIFO gross margin rate, excluding fuel, decreased 65 basis points compared to the same period last year, primarily related to sales deleverage from sliding comps, higher shrink, price investments and charges related to the COVID pandemic. This was partially offset by growth in alternative profits, primarily its Retail Media and Kroger Personal Finance businesses.

The results represented the first announced since Kroger introduced a comprehensive business strategy called Leading With Fresh and Accelerating With Digital, which succeeded its three-year Restock initiative. The plan calls for Kroger to double its online sales and their associated profitability by 2023, and accelerate its advantages in fresh food.

Digital sales in the first quarter grew by 16% and by 108% on a two-year stack. The company during the first quarter opened its first two customer fulfillment centers built in partnership with Ocado to launch a revamped proprietary delivery business in Ohio and in Florida, and it expanded grocery pickup service to 2,233 stores and delivery ability at 2,488 stores, reaching 98% of customers. Kroger also said its pickup capacity increased by 15% in quarter as it added additional high-demand pickup slots.

Fresh food highlights in the quarter included the introduction of 253 new own-brand items; an expansion of a partnership with the indoor-grown salad brand 80 Acres Farms to 316 stores; and a digital former’s market pilot connecting local farmers and small businesses to consumers. The company also launched what it called its Go Fresh & Local Supplier Accelerator, a program supporting emerging fresh brands.