Price Investments, Omnichannel Drive a Better Q2 Than Expected at Kroger

Revenues and comparable-store sales at Kroger Co. came in ahead of company and analyst expectations during the company's fiscal second quarter, driven by price investments and increased omnichannel shopping options that the company said are keeping consumers in the habit of eating at home.

Total revenue increased by 3.9% to $31.7 billion in the quarter, which ended Aug. 14. Non-fuel comps decreased by 0.6%, well ahead of Wall Street’s expectation of a dip near 3%. Kroger was cycling dramatic COVID-aided comps of 14.6% from a year ago, so on a two-year stack, comps increased by 14%.

Digital sales on a two-year stack increased by 127%.

“Our strategic focus on leading with fresh and accelerating with digital continues to build momentum across our business,” CEO Rodney McMullen said in a statement. “Kroger’s seamless ecosystem is working. This was evident during the quarter as we saw customers seamlessly shift between channels, and we continued to see strong digital engagement. Customers are eating more food at home because it is more affordable, convenient, and healthier than other options.”

Quarterly earnings per share of 61 cents came in below Wall Street expectations, but when adjusted for a sizable pension investment in last year’s second quarter, it totaled 80 cents, above a 65-cent consensus estimate. Gross margins as a percent of sales tumbled from 22.8% last year to 21.4% this year, illustrating effects of higher supply-chain costs, higher shrink as volumes declined, and investments in price. This was offset to a degree by internal cost reductions and strong growth in what the company refers to as “alternative profits,” such as those from advertising fees.

The results prompted Kroger to increase previously announced guidance for its fiscal year. It is now forecasting fiscal year comps of -1.5% to -1%, vs. a range of -2.5% to -4% announced in June. It is expecting stacked comps to increase by a range of 12.6% to 13%, vs. a previous forecast of 10.1% to 11.6% growth.

Kroger also increased its expectations for adjusted earnings per share for the fiscal year to a range of $3.25 to $3.35, vs. the $2.95 to $3.10 range announced in June.

“Kroger’s strong execution resulted in identical sales above our internal expectations for the second quarter, and we continued to remove costs from the business,” CFO Gary Millerchip said, adding, “We are emerging stronger through the pandemic and are confident in our ability to deliver sustainable earnings growth and total shareholder return.”