Kroger Smashes Q1 Earnings on Pandemic Demand

Pandemic-fueled demand, a shift of food from sales from shutdown rivals like restaurants and growing e-commerce options helped Kroger to historic gains in sales and profits during its fiscal first quarter.

The Cincinnati-based grocer said sales in the period, which ended May 23, leaped by 19.1% to $42 billion, with non-fuel comparable-store sales up by 19% and operating profit soaring by 47.2% to $1.3 billion. Gross margins as a percent of sales increased by 44 basis points to 24.3% of sales as soaring volumes helped reduced shrink in stores.

Digital sales climbed by 92%. Revenues and adjusted earnings of $1.22 per share exceeded consensus analyst estimates, despite investments of more than $830 million to safeguard stores, workers and customers during the pandemic.

In a release, the company said it could not at this time provide financial guidance for its fiscal year, citing uncertainty around continued investments, consumer behavior, the pace of lifting restrictions and how sustained the shift to eating at home would be.

“The COVID-19 pandemic has dramatically changed the outlook for food retail in 2020 and we continue to monitor, evaluate and adjust our plans to address the impact to our business. There are still many unknown factors related to the long-term impact of COVID-19 that could influence our financial results for the remainder of 2020,” said Gary Millerchip, Kroger’s CFO.

Millerchip reiterated expectations that the company would exceed the outlook shared in its April 1 business update for identical sales without fuel of more than 2.25%, adjusted operating profit of $3 billion to $3.1 billion, adjusted earnings per share of $2.40 and adjusted free cash flow of $1.6 to $1.8 billion.

“Kroger's financial model has proven to be resilient throughout the economic cycle. We remain confident in our business model, as well as our ability to generate strong free cash flow and achieve sustainable and attractive total shareholder returns,” Millerchip said.

CEO Rodney McMullen’s statement also acknowledged uncertainty in the environment, including COVID-19 anxiety and the social justice demonstrations sweeping the country.

"The COVID-19 pandemic and the most recent instances of racial injustice have changed our country in unmistakable ways, not the least of which is the devastating loss of life and livelihood that has affected so many Americans. Kroger remains guided by our purpose and our values. I am proud of our associates who stepped up when we were called to be there for our customers, communities and each other. Our company is proud to stand with our Black associates, customers and communities against racism and for a more just and equitable society,” McMullen said.