Kroger tallies Q1 sales gains

Net and identical sales edged up at The Kroger Co. for the fiscal 2023 first quarter, with the supermarket giant topping Wall Street’s earnings-per-share forecast and reaffirming its full-year outlook.

For the quarter ended May 20, net sales totaled $45.17 billion, up 1.3% from $44.6 billion a year earlier, Cincinnati-based Kroger said Thursday. That built on an 8% gain in the fiscal 2022 quarter. Excluding gasoline, sales in the 2023 quarter increased 3.5%.

Identical sales excluding gas climbed 3.5% in Q1 and came atop a 4.1% uptick a year ago, for 7.6% growth on a two-year stack. Backing out lost pharmacy sales from the contract termination with pharmacy benefit manager Express Scripts, ID sales without fuel would have been up 5% in the quarter, Kroger noted.

Among ID sales results, customer households and trips grew during the first quarter, Kroger reported. Digital sales climbed 15% year over year, rebounding from a 6.3% decline in the 2022 quarter following a difficult prior-year comparison.

Kroger's Q1 sales results came amid declining food price inflation. Month to month, the food-at-home Consumer Price Index inched up 0.1% in May after decreases of 0.2% in April and 0.3% in March and a 0.3% uptick in February, according to the U.S. Bureau of Labor Statistics. On an annual basis, the food-at-home index was up 5.8% in May, continuing drops from 7.1% in April, 8.4% in March and 10.2% in February.

“Kroger achieved solid first-quarter results, guided by the execution of our ‘Leading with Fresh and Accelerating with Digital’ strategy. As more customers are feeling the effects of inflation and economic uncertainty, we are growing customer households by providing fresher products at affordable prices with personalized rewards,” Kroger Chairman and CEO Rodney McMullen said in a statement.

The quarter saw Kroger expand its End-to-End Fresh Produce initiative to 1,738 certified stores, which the company said contributed to ID sales growth. In addition, 1,094 stores now provide alternative farming offerings, which the retailer said connects more communities to locally sourced fresh products.

Sales of Our Brands, Kroger’s private-label portfolio, rose 4.9% in Q1. Kroger noted that it added 223 new own-brand products, including from its Smart Way value-focused line.

On the e-commerce front, Kroger Delivery sales—driven by Ocado-automated customer fulfillment centers and the Kroger Boost membership program—rose 30% from and year ago, and digitally engaged households grew by 13%, according to Kroger. On-demand floral and sushi delivery to the Uber Eats marketplace also expanded in Q1. The company, too, cited a 48% gain in digital coupon downloads.

Meanwhile, margins got a lift from increased private-label sales and lower supply chain costs, partially tempered by higher levels of shrink and increased discounting, Kroger said.

“Looking forward, Kroger’s go-to-market strategy positions us well in a wide range of economic environments to continue to deliver for our customers, invest in our associates and achieve sustainable and attractive returns for shareholders,” McMullen added.

At the bottom line, Kroger reported 2023 first-quarter net earnings (attributable to the company) of $962 million, or $1.32 per diluted share, compared with $664 million, or 90 cents per diluted share, a year ago. Excluding $142 million in investment losses, merger-related expenses and legal settlement costs, adjusted net earnings were $1.1 billion, or $1.51 per diluted share, versus $1.07 billion, or $1.45 per diluted share, in the year-ago period.

Analysts, on average, had projected adjusted EPS of $1.46, with estimates ranging from $1.39 to $1.64, according to Refinitiv.

Kroger held steady on its fiscal 2023 sales and earnings guidance, including adjusted EPS of $4.45 to $4.60 and ID sales growth of 2.5% to 3.5% excluding fuel and the impact of the Express Scripts contract termination.

Before Kroger’s Q1 report, Wall Street’s consensus estimate was for fiscal 2023 adjusted EPS of $4.50, with projections running from $4.29 to $4.60, according to Refinitiv.

“Kroger’s first-quarter results demonstrate the durability of our business model in a more challenged operating environment,” Chief Financial Officer Gary Millerchip stated. “The investments we have made over recent years to deliver for our customers and strengthen our value creation flywheel give us the confidence to reaffirm our full-year identical sales without fuel and adjusted net earnings-per-diluted-share guidance. We delivered strong adjusted free cash flow in the quarter and, as a result of improvements in working capital, we are raising our guidance to a range of $2.5 billion to $2.7 billion for the fiscal year 2023.”