Kroger Raises Full-Year Guidance, Will Expand Boost Program Nationwide

Record high inflationary times and shoppers sticking to at-home dining trends led Kroger to higher gains in sales during its fiscal first quarter.

The Cincinnati-based grocer reported June 16 that sales in the period, which ended May 21, landed at $44.6 billion, compared to $41.3 billion for the same period last year. Excluding fuel, sales increased 3.8% compared to the same period last year.

On the heels of the company's strong quarter, Kroger raised its full-year guidance, saying it now expects 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.

"Our relentless focus on executing our strategy and sustained food-at-home trends led to a strong first quarter," Kroger CFO Gary Millerchip said in a statement. The company's "diverse and resilient business model" gave Kroger confidence to lift its full-year guidance, Millerchip said, adding, "We remain confident in our ability to deliver sustainable earnings growth and total shareholder returns of 8% to 11% over time."

Earnings per share in the recently wrapped quarter increased to 90 cents per share, up from 18 cents per share in 2021. The grocer also reported adjusted earnings per share of $1.45

Gross margin was 21.6% of sales for the first quarter, Kroger reported. During times of rising prices, the company's first-in, first-out (FIFO) gross margin rate, excluding fuel, decreased 26 basis points compared to the same period last year, Kroger said in a statement. The grocer also added that the “decrease was primarily attributable to continued strategic price investments and higher supply-chain costs offset by sourcing benefits and the cycling of a write-down related to a donation of personal protective equipment inventory from prior year.”

Kroger reported that the last-in, first-out (LIFO) charge for the quarter was $93 million vs. a LIFO charge of $37 million for the same period last year. The grocer said results were driven by higher inflation.

The company, which credited its strategy of "Leading With Fresh" and "Accelerating With Digital," reported fresh department identical sales increased 5.2%, while identical sales of Kroger’s Our Brands increased 6.3%.

Chairman and CEO Rodney McMullen announced during the June 16 earnings call that Kroger's loyalty membership program Boost will launch nationwide. "We are encouraged by the number of new members in the four current pilot divisions; importantly delivery sales increased significantly compared to non-Boost divisions. And delivery retention improved approximately 600 basis points. Because of this early success we are proud to announce today that Kroger Boost is launching nationwide in the next few weeks."

First-quarter highlights saw the grocer achieve the two highest single-day floral sales in Kroger history, led by Valentine's Day and Mother's Day, the grocer said in a statement. The company also boasted the acceleration of its end-to-end fresh produce initiative with 355 new stores certified, driving higher fresh sales during the quarter.

"Kroger achieved strong first-quarter results as we successfully executed on our strategy of Leading With Fresh and Accelerating With Digital,” McMullen said in a statement.

McMullen said Kroger is well-positioned to continue delivering for its customers, investing in its associates, and driving sustainable returns for shareholders.

“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. We are delivering everyday value through personalized experiences, trusted Our Brands products, data-driven promotions and seamless e-commerce solutions," McMullen said.

In terms of the company’s capital allocation strategy, Kroger said its net total debt to adjusted EBITDA ratio is 1.68, compared to 1.79 a year ago. The company also reported that its net total debt to adjusted EBITDA ratio target range is 2.30 to 2.50.

Kroger said it continues to generate strong free cash flow and remains committed to investing in the business to drive long-term sustainable net earnings growth.