The Kroger Co. (KR) on Q2 2021 Results - Earnings Call Transcript

Operator: Good day and welcome to The Kroger Company Second Quarter Earnings Call. All participants will be in listen-only mode. . After today's presentation there will be an opportunity to ask questions. . Please note this event is being recorded. I would now like to turn the conference over to Rob Quast. Please go ahead. Rob Quast: Thank you Sarah. Good morning. Thank you for joining us for Kroger Second Quarter 2021 Earnings Call. I am excited to be here today and look forward to working with all of you in my new role as Head of Investor Relations. I am joined today by a Kroger 's Chairman and Chief Executive Officer, Rodney McMullen, and Chief Financial Officer, Gary Millerchip. Before we begin, I want to remind you that today's discussions will include forward-looking statements. We want to caution you that such statements are predictions and actual events or results can differ materially. A detailed discussion of the many factors that we believe may have a material effect on our business, on an ongoing basis is contained in our SEC filings. The Kroger Company assumes no obligation to update that information. Our press release and supplemental information regarding the quarter can be found on our website at ir. kroger.com. After our prepared remarks, we look forward to taking your questions. I will now turn the call over to Rodney. Rodney McMullen: Thank you, Rob and congratulations on your new role. I would also like to take a minute to thank Rebekah Manis for her service to the IR team. We wish her continued success in her new role as Head of New Geographies for our customer fulfillment centers. Finally, I would like to thank you all for joining us today. Our associates have done an incredible job operating our stores, pharmacies, supply chain, and manufacturing facilities through the COVID environment. Their unending commitment to serving our customers and communities continues to make a difference in Kroger's second quarter identical sales without fuel. Grew 14% on a 2-year stacked basis, ahead of our internal expectations. We saw triple-digit growth in Digital over the same time period, and continue to drive costs out of the business through cost-saving initiatives and operational efficiencies. We remain confident in our positioning and our ability to deliver consistently attractive total shareholder returns of 8% to 11% over time. I'd like to spend the next few minutes discussing 3 key areas. First, customer behavior and how our seamless ecosystem is working. Second, I'll share examples of how we're Leading with Fresh, and Accelerating with Digital. And finally, I will highlight how we continue to live our purpose. To feed the human spirit through the associate experience, and our work to advance Kroger 's ESG commitments. Our strategic focus on leading with Fresh and Accelerating with Digital continues to build momentum across our businesses. As we've operated through the pandemic, we've recognized that the structural shifts in our customers eating and cooking habits. Customers are responding favorably to our value proposition and are enjoying the convenience of our seamless offerings. Early in the quarter, our customers visited stores more frequently, and many shifted from online to in-store. This highlights the relevance and convenience of our easily accessible footprint. Towards the end of the quarter, as COVID-19 cases increased in many geographies, customers began shifting back to our digital solutions. This further demonstrates the strength of our seamless ecosystem. Customers can choose how they want to shop. Our job is to be available in every channel so the customer does not have to compromise. Regardless of how they choose to shop, customers are eating more food at home because it's more affordable, convenient, and healthier than other options. While some food at home trends may be transitory, our research success those I highlighted are structural and Kroger is uniquely positioned to address them through our assortment of Fresh products, world-class digital platforms, and innovative mill solutions. We will continue to elevate our position as a food authority so that when customers think food, they think Kroger. We continue to advance our position as a leader in Fresh during the second quarter. We saw positive identical sales and produce in floral and deli-bakery, even as we lapped, elevated sales in 2020. Our research shows how much our customers love our brands. Sales for both Simple Truth and Private Selection brands were strong as food at home trends remained sticky. We continue to innovate within Fresh. For example, our expanded partnerships with Ghost Kitchen allow us to offer customers freshly prepared, on-demand restaurant food. This is especially relevant at a time when many customers are looking for inspiration. And 70% of our customers say convenience is important when cooking. We also announced our 2021 Go Fresh & Local Supplier Accelerator Cohort, and are already bringing innovative locally and regionally sourced products to stores across the country, and helping many small entrepreneurs achieve their dreams. Earlier this week, Kroger announced our new brand icon, the Fresh Cart icon, brings together the Kroger family of companies under one unifying visual, and reinforces our brand promise. Fresh for Everyone. We're very proud of our growth in Digital, which increased a 114% over the last 2 years, similar to our first quarter growth. We remain on track to deliver against our 2023 Digital growth and profitability targets introduced at our 2021 IR day. While digital sales decreased 13% during the quarter, almost all customers who reduced their online spend during the quarter continued to shop with us in-store, highlighting the power of our ecosystem and our ability to create a meaningful customer experience across all channels. As a short reminder, Kroger has doubled our e-commerce household penetration, increasing the number of our brick-and-mortar customers that engage with our digital solutions since 2019. During the quarter, we added over 340,000 new customers to our digital platforms. We continue to expand capacity across our footprint, and we reduced wait times for Kroger Pickup. As we look ahead, our seamless ecosystem will remain a competitive advantage, as we offer what customers need and want in a way that fits into their life. Whether it's shopping in our stores, picking it up at our stores, or getting it delivered or shipped directly to their homes. We continue to enhance our seamless ecosystem. As we've shared last quarter, we currently have 2 customer fulfillment centers open, which are expanding our capabilities in Ohio, and allowing us to expand into new geographies within Florida. We are happy with the performance thus far and are energized by the volume and growth in both sheds. In Ohio, our focus has been on involving the customer proposition to maximize opportunities alongside our existing digital solutions. In Florida, we launched delivery savings pass, offering customers unlimited deliveries for just $79 per year. We continue to see incredible Net Promoter Scores and our customers tell us they love our friendly, professionally trained drivers and the refrigerated delivery vans that bring the freshest food directly to their doorsteps. Looking ahead, we remain on track to open 6 customer-fulfillment centers over 2022 and 2023, which will further expand our seamless ecosystem. Before I share some specifics on how we are using data and personalization to grow the business, I thought it would be helpful to remind you about our rewards program and how it works. Our rewards programs has been active for over two decades. It captures data from 60 million households and 96% of ourselves. Customers clearly see the value of our program, which drive sales and builds loyalty. As an example, nearly 60% of all items in a digital basket were added through our personalization science, highlighting our ability to make meaningful suggestions that surprise and delight customers. Furthermore, when we personalized recommendations for our customers, we can reduce their time to shop by nearly 70%. Overall, 1 in 3 people have noted that groceries have gotten more expensive in the past month. Kroger customers benefit from our personalization as we offer highly relevant savings at a household level, allowing them to further stretch their food dollars. Our associates continue to deliver a full, fresh and friendly customer experience every day, every time, while also supporting our communities through the pandemic. We remain urgently focused on keeping people safe in our stores and facilities. Our teams were recently recognized with the Gold Award for Excellence and Human Capital Management from the Brandon Hall Group for our people-centered COVID-19 response. Obviously, we're especially proud of that recognition. During the quarter, we introduced new technology to elevate our associate experience. Kroger launched Fresh Start, a new personalized training program to foster greater associate engagement and retention. We also launched our Feed app, which provides associates easy access to Company communications, and resources from their smartphones. We are incredibly proud that during the quarter, we saw an improvement in retention, as we strive to be an employer where associates can come for a job and stay for career. Now -- turning now to deliver our purpose. We continue to believe that customers, associates, and investors are increasingly choosing where to shop, where to work, and where to invest in companies that are taking meaningful steps to improve our communities, and work to build a more sustainable planet. We've recently published our 2021 ESG report on the kroger co.com. It outlines our progress over the last several years. It further outlines our aspiration to further integrate ESG performance into lines of business and our commitment to creating shared value that benefits all stakeholders. We imagine a world where everyone is thriving together. And Kroger is helping millions of people live healthier, more sustainable lifestyles, protecting and restoring natural resources, and contributing to more responsible and inclusive global systems. One of the many ways we bring our ESG vision to life is through our work that our Kroger help team has been doing to serve and support our customers and communities through the pandemic. During the quarter, we worked with Lyft that provide rides to COVID-19 vaccine appointments. Teamed up with local sports icon to drive awareness and access in the underserved communities. And we concluded our community immunity giveaway. To date, we have provided over 6.7 million doses of the vaccine and continue to drive availability and education. And yesterday, President Biden noted that Kroger is one of 3 national partners who have agreed to make the rapid COVID tests available to customers at cost for the next 100 days. Kroger is committed to helping people live healthier lives while safeguarding the communities we serve. Our ESG goals are ambitious, and with a team of almost 500,000 dedicated and driven associates, they are also achievable. Since we first introduced our commitment to delivering strong and sustainable total shareholder return in 2019, our teams have been laser-focused on execution. This focus has resulted in tangible results allowing us to deliver this quarter, and for the long term. Now I would like to turn it over to Gary to discuss our second quarter financial results. Gary. Gary Millerchip: Thanks, Rodney. And good morning, everyone. Kroger is delivering strong results and continues to build momentum as we execute on our priorities of leading with Fresh and accelerating with digital. During the quarter, adjusted FIFO operating profit grew by a compounded annual growth rate of 23% over 2019. And adjusted EPS grew by a compounded annual growth rate of 35% over the same two-year period. This reflects our disciplined approach to executing our strategy. Balancing investments in our associates and customers with strong cost management and accelerating growth in our alternative profits business. It also provides a further proof point of how we are successfully navigating the pandemic and emerging stronger as a business. I will now provide additional details on our second quarter results. Identical Sales Without Fuel declined 0.6%. On a 2-year stack basis, Identical Sales Without Fuel increased 14%. Each period during the quarter was stronger than the last. And I'm delighted to say we returned to positive Identical Sales Without Fuel during the final period of the quarter. Our Digital platform remains a key strength in our model, and we were pleased with the triple-digit growth achieved over 2019. We remain on track with our plans to double our Digital business by 2023. And would expect continued investments in the customer experience, scaling at new fulfillment centers, and several new innovations, which we will announce throughout the year to drive future growth. As shared last quarter, we would not expect future digital growth to be linear, especially as we cycle COVID in 2021. During the quarter, we also made further progress in improving digital profitability, as we achieved a record low for the time taken to pick a digital order in-store and continued to see growth in the media revenue generated on digital transactions. Gross margin was 21.4% of sales for the second quarter. The FIFO gross margin rate, excluding fuel decreased 60 basis points compared to the same period last year. This decrease was primarily related to price investments and higher shrink and supply chain costs, partially offset by sourcing benefits and growth in our alternative profit business. On a two-year basis, our FIFO gross margin rate excluding fuel decreased 55 basis points compared to 2019. Consistent with many retailers, we experienced supply chain constraints and increased warehouse and transportation costs during the quarter. We are actively managing this risk within our business by securing increased capacity and augmenting associate retention programs within our own facilities. We expect supply-chain cost to remain elevated in the second -half of the year and this is contemplated in our updated guidance. In the second half of the quarter, we also saw higher inflation in some categories. We are being disciplined in working with suppliers to manage these increases, and are passing along higher cost to the customer when it makes sense to do so. While difficult to predict with precision, as we shared last quarter, we believe inflation for the full year will be higher than originally contemplated in our 2021 business plan. For the second half of 2021, our guidance now is to use inflation of between 2% and 3%. Recognizing recent inflation trends, and our outlook for the rest of the year, we recorded a higher LIFO charge for the quarter at $47 million compared to $23 million in the prior year. Premise, strong operational execution allowed us to leverage operating general and administrative expenses by 76 basis points, excluding fuel and adjustment items in the second quarter. This reflects lower COVID-19 related costs and savings captured through our cost saving initiatives. On a two-year basis, our OG&A rate excluding fuel and adjustment items, decreased by 137 basis points compared to 2019. We continue to see opportunities to streamline processes and leverage technology, and remain on track to deliver $1 billion in cost savings during 2021. The traffic and data generated by our seamless ecosystem continues to create a strong flywheel effect for our alternative profit business, which again experienced significant profit growth in the quarter. Media and Kroger personal finance continue to lead the way. And we remain on track to achieve the high end of our expected range of $100 million to $150 million of incremental operating profit in 2021. Fuel is also an important part of our overall value proposition for our customers. Gallons grew in the second quarter by 7% and outpaced market growth. The average retail price of fuel was $3.13 this quarter versus $2.14 in the same quarter last year. Our cents per gallon fuel margin was $0.39 compared to $0.37 in the same quarter in 2020. And fuel was a tailwind to operating profit of $33 million compared to prior year. Turning now to our financial strategy, we continue to generate strong free cash flow and remain committed to investing in the business to drive sustainable growth, while also returning excess cash to shareholders. We are prioritizing capital investments that support our growth strategy, widen our competitive modes, and deliver strong returns. Capital expenditures year-to-date were down compared to prior year as we carefully navigated the impact of higher project costs and longer project lead times due to a challenging labor market. As we confirmed in guidance today, we are maintaining our range for capital investments, excluding mergers, acquisitions, and purchases of leased facilities up between $3.4 and $3.6 billion dollars. And we currently anticipate coming in at the low-end of this range for the year. During the quarter, Kroger repurchased $349 million of shares and year-to-date has repurchased $751 million of shares. As of the end of the second quarter, $779 million remains outstanding under the current board authorization announced on June 17th, 2021. In June, Kroger also increased the dividend by 17%, marking the 15th consecutive year of dividend increases. Our proactive approach to investing in our associates over recent years is helping us navigate a challenging labor market. Our strategy continues to focus on investing in compensation plans that reward our associates in ways that are meaningful to them. We are committing to investing $350 million in hourly wage increases for our associates in 2021, in addition to the $800 million we invested in associate wages between 2018 and 2020. Over the same period, we have also taken several opportunities to improve the security of our associates pension benefits. Our average hourly rate is now in excess of $16/hour, and with comprehensive benefits factored in, will be approaching $21 by the end of 2021. We are committed to increasing retail hourly wages sustainably. And our long-term financial model fully contemplates continued investments in associate hourly rates. During the second quarter, we ratified new labor agreements with the UFCW for associates in our Atlanta, Michigan, Food 4 Less, and Mid-Atlantic divisions, covering over 34,000 associates. We continue to negotiate contracts with the UFCW for store associates at Houston, Little Rock, Memphis, and Portland. Our financial results continue to be pressured by inefficiencies in healthcare and pension costs, which most of our competitors do not face. We continue to communicate with our local and international unions, which represent many of our associates about the importance of growing our business in a profitable way, which will help us create more jobs and career opportunities, and enhance job security for our associates. Turning now to our expectations for the second half of 2021. Driven by momentum in our results and sustained trends in food at home, we are raising our full-year guidance. We have also have narrowed the range of our guidance as we are further into the year and the trends in our business and the broader food at home market become clearer. We now expect identical sales without fuel in the second half of 2021 to be flat to slightly positive, resulting in full-year results of -1.5% to -1%, and a 2-year identical sales stack up between 12.6% to 13.1%. We expect our adjusted net earnings per diluted share to be in the range of $3.25 to $3.35. We expect our adjusted FIFO operating profit to be in the range of $3.9 billion to $4 billion, reflecting a two year compounded annual growth rate between 14.1% and 15.6%. In conclusion, we are emerging stronger through the pandemic and remain confident in our ability to deliver total shareholder return of 8% to 11% by sustainably growing earnings and using our resilient free cash flow to return excess cash to investors. And now I'll turn it back to Rodney. Rodney McMullen: Thank you Gary. The environment we operate in is dynamic, and I am so proud of our associates ability to meet the challenge, and serve our customers while building for the future. Kroger 's seamless ecosystem is working. This was evident during the quarter, as we saw customers seamlessly shift between channels, and we continue to see strong Digital engagement. We're leveraging technology, innovation, and our competitive moat to deliver against the total shareholder return model we introduced in 2019 and reinformed in 2021. Kroger will continue to deliver for all stakeholders, and position the business for long-term success. Now we look forward to your questions. Operator: We will now begin the question-and-answer session At this time, we will pause momentarily to assemble our roster. Our first question comes from Greg Badishkanian with Wolfe Research. Please go ahead. Spencer Hanus: Good morning. This is Spencer Hanus on for Greg. Can you guys talk about the comps that you're seeing quarter to date because I think the guidance does imply somewhat of a slowdown on a 2-year basis in the second half. And then although it's early, how are you thinking about comps in 2022? Do you guys get back to your long-term algo next year? Thanks. Rodney McMullen: Yeah, as Gary mentioned in his prepared remarks, the last period of the second quarter, returned the positive identical. And so far in the third quarter, we've continued to see the trend of positive identical and our guidance for the balance for the year is positive as well. So we're very pleased with where we are. We're pleased with the performance our teams are doing. And we're making progress and substantially ahead of where we initially we thought we would be at this point in time on cycling the COVID dip from last year. As we look toward 2022, Gary, unless you want to get into more of the details. I think the key thing would be what we talked about at our Investor Day in 2021. And that's our commitment to a TSR model of 8% to 11%. And that's driven by a combination of sales growth, slight margin improvements, and taking free cash flow, and returning to our shareholders via dividend and stock buyback. And the sum of those together is what will drive the 8 to 11. And we remain committed to that. And, obviously, since we put it in place in 2019, we've outperformed it. Gary, if you want to add anything? Gary Millerchip: The only thing I would add, I think you said it very well, Rodney, is we feel really good about the trends in the business. Obviously, as we shared on the prepared comments, as you look at the back half of the year, you asked some -- for additional color on how we're thinking about the trends that we're seeing there and the guidance. I would say, we're obviously heading into the back half of the year, as Rodney mentioned, with momentum in the business. We did raise the guidance to now be in that sort of 0-1% for the back half of the year based on reversing into that from the year-to-date performance and the guidance that we gave for the year. Overall, we're feeling really good about how we're executing in the business and seeing that sustained trend in food at home as consumers continue to gravitate towards some of the trends that Rodney talked about. And also obviously, we are seeing some return to previous behavior with the Delta variant currently prevalent in the U.S. as well. That being said, we do still think they're off some names in the market. If you look at different countries, how long the impact of the Delta variant last, if you like, on consumer behavior, we are seeing some consumers return to normal behavior of returning to offices in some cases. And so while we feel really good about our trends and our ability to continue to win with the customer, the back-half of the year would be more of an 11 to 12% two-year stack based on still some of the uncertainties and unknowns around those elements that we're still looking to see how they play out. I think the only other thing that I would reinforce on Rodney's comment is that we do expect as we shared at our investor day at the beginning of the year, as we comb through 2020 and 2021, we expect the overall food at home, trends in the market, but also specifically Kroger's overall sales to come out of 2021 in a much stronger position than we would have been had the pandemic not occurred. And so we believe that that will still stand to be true as we head towards '22 and obviously we look forward to sharing more details on 2022 when we get to -- towards the end of the year. Spencer Hanus: Thanks, that's really helpful color. And then could you guys comment on how rational your periods have been at passing through inflation. And are you expecting any gross margin headwinds from some of the elevated inflation in the perimeter of the store. Any additional color there would be helpful. Rodney McMullen: If you look at -- during the quarter, about half of the gross margin impact was from higher shrink and higher supply chain costs. And Gary and his prepared remarks talked a little bit about both of those. But if you look at shrink, a lot of that, about half of the half or 25% of it is driven within the shrink component. And that's heavily driven by organized crime or at least it appears to be. And I know Congress and other groups are starting to spend more time on understanding what's driving that, what's behind it, and what's the distribution channels for the stolen products as well, and trying to manage that. And then on the supply chain costs, we are proactively investing there to minimize the effect. On both of those areas, the guidance that Gary shared for the balance of the year reflects the pressure in those areas. And from an Inflationary standpoint, as you know, over time, we've been successful in operating inflow, or negative inflation and high inflation. And we would see this no different. And our business, the easiest place to operate is -- an inflation is between 3% or 4%, but you don't ever get what you -- it makes it the easiest. But so far, where costs are being passed through in an organized way, for the most part. And as we would expect in following our strategy. Spencer Hanus: Great. Thank you so much. Rodney McMullen: Thanks, Greg. Sorry. Operator: Our next question comes from Michael Lasser with UBS. Please go ahead. Michael Lasser: Good morning. Thanks a lot for taking my questions. I wanted to drill down into your comments around the consumer embracing eating at home, coupled with targeting the total shareholder return formula for next year. We're still largely in the midst of this pandemic, many workers are still working from home. So is the strength of this year just delaying the inevitable shift back to food away from home in calendar 22. And if that's the case, you're guiding to a 3% operating margin this year essentially. How will you be able to maintain this operating margin rate in an environment where your sales are going to continue to be pressured, particularly as you have reduced a lot of your OG&A expenses this year. Thank you. Rodney McMullen: Thanks. Michael, I'll start and let Gary finish. If you look at all of our research on April eating at home, customers are telling us they enjoy eating at home and eating with their families, which we believe is structural and sustainable. They're also telling us that eating at home, they're able to eat healthier, stretch their budget significantly further because it's not nearly as expensive as eating in a restaurant. And they also like showing off their new skills on cooking. And all of those things, everything that our research would suggest are long-term trends and structural trends. The other thing that everybody on the call, your guess is as good as ours but everything that we can tell, we believe that people will continue working from home more than the past. And many companies, and I know certainly we are, are supporting people in terms of different jobs. What jobs can be worked from what location. And in all of those cases, what we're finding is people are eating more meals at home, i.e. breakfast and lunch. So everything that we can see meaningful part of the trend change is really structural and sustainable and it's not just a one-time blip because of COVID. In terms of the margins and stuff, Gary, I'll let you drill into some of that detail. Gary Millerchip: Yes. I think all I would add Rodney is maybe just Michael, take you back to the journey we've been on for the last three years with that model. And you should think about how we teed it up at our Investor Day, we feel that over 2019, 2020, and now 2021, we're really demonstrating how we're able to manage the business more holistically as we think about delivering on our TSR model. So you think about the continued investments even though the pandemic that we are making our customers to ensure that they see the value we're delivering. Whether that's in the experience and some of the digital investments sold through continue to invest in price where it makes sense, some personalization to make sure we're positioned well with the customer. The investments that we're making in average hourly rate for our associates to ensure that we're continuing to improve the experience there. And as you look at that and then think about the way in which we -- we've managed costs with continuing to accelerate our alternative profit businesses. And at the same time, continue to get stronger and more effective at sourcing and managing margins in that way. I think that gives us confidence in our ability to continue to manage the business overall, and drive a strong TSR in line with our commitments as you think about overtime, what our commitments are to our shareholders. So we'll obviously get into more specifics around how we think about 2022 later in the year. And I at this point, I wouldn't want to get into specific details about next year, but that's certainly how we think about our model and how we get confident in our ability to maintain the trajectory over time and supported by Rodney 's comments on how we think about continuing to see the customer spend dollars of food at home and how we can continue to grow our business within that context. Rodney McMullen: As you look at costs, it's one of those things where we've been able to take costs out of the business without affecting the customer experience for years and I know when we set out a goal, we always think that that's all we're going to find. And then our great teams are able to find more areas for process change in cost opportunities. And when I have watched our operations team, Gary mentioned the procurement team, our technology team, but more importantly, how our stores and technology and operations team are working as one that continue to identify things to make our associates' job easier, to reduce the number of touches of product and be able to take costs out, which our customers then benefit. And some of that cost reductions shared with our customers, some of it is shared with our associates. But it's part of the overall flywheel that continues to accelerate and make our model sustainable. And Gary's point on alternative profit is an important component of that, as well. Gary Millerchip: Actually Rodney. One other thing on the cost side, Michael, that I think is important to you. We mentioned this again in our Investor Day, but this -- the plan that we have to double-digital profitability, that's obviously very important to the long-term strategy that Rodney outlined around how do we make sure that from a customer perspective, them not having to compromise between store and digital experiences. But it is also important from a business model point of view to continue to improve the profitability of the channel. So that from our perspective, we can be agnostic from whether the customers buying online or buying in the store. As we grow that Digital profitability rate, important to remember, that just doesn't affect the growth in the future, it affects the $10 billion business that we have today. So that's also proving to be a tailwind in the financial modeling OG&A now. But also will continue to be a tailwind because we're already partway through that journey as we take cost out of filling an order, and continue to grow revenue per transaction as well. Michael Lasser: And my follow-up is focusing on the media revenue per transaction. It seems like that's the area where you are really supporting the profitability of your digital business. And subsequently the overall gross margin for Kroger as a result, where are you from -- in advertising perspective, from a large CPG Company perspective, versus getting more advertisers on the platform? Can you frame how big this advertising opportunity can be in the unrelated side note, to what extent was there a vaccine distribution benefit within the gross margin? One of your large competitors talked about that within the quarter. Rodney McMullen: Several questions there. I'll briefly talk about the media. We still see retail media as a significant opportunity and we shared at Investor Day, but Kroger's retail media team and our retail media offer in 5 different areas. We ranked number 1 among our competitors in 3 of the 5, and we were tied for number 1 in the other two. So obviously, the value CPGs get from our offer and our ability to use our data to make sure the right customers are seeing offers is substantial and significant. And we believe that it's a significant opportunity to continue to grow retail media. I won't get into specifics other than we would say that we feel like we're just getting started. Gary Millerchip: And then Michael, I'll just say on the health and wellness question, we would certainly have seen some benefit from COVID vaccines during the quarter. Having said that, we pivoted a lot of our efforts in the pharmacy business, which is the big part about operation in our Little Clinic. I would say, net-net. If you looked at the health and wellness business, I would think of it as largely being on plan, and so I wouldn't think of it as a headwind or tailwind during the quarter, or for that matter, being a headwind for the rest of the year either. I think we've got fully given that guidance the -- the expectations around the health and wellness business going forward. Michael Lasser: Thank you, very much and good luck. Rodney McMullen: Thank you. Operator: Next question comes from Chuck Cerankosky with Northcoast Research. Please go ahead. Chuck Cerankosky: Good morning, everyone. Nice quarter. I want to talk a little bit about or ask a little bit about private label in this inflationary period. How do you see customers reacting to it? And is there a difference between a customer shopping in-store and online? Rodney McMullen: If you look at our brands, Simple Truth and Private Selection continues to really gain share and grow. We're also finding big packs are growing significantly. If you look at -- for us, we find our brands. If CPG s are passing through inflation, that's not real. All -- every time when somebody does that, our brands even gain incremental share. The other thing that I've been really proud of our team is the innovation they put behind the product. And we've introduced over 140 new products in the quarter, and we continue to expect that going forward. I don't -- we're not seeing behavior changes. If you go back to prior times when you had inflation, the customer, a lot of times would trade over to our brands as part of their stretching their budget. We're not seeing budget changes on our brands happening at this point, but I'm sure if inflation continued, our customers are telling us they still feel pretty good where they are financially. And for the most part, people are still saving at record levels and things like that. Now at some point, if budgets got more constrained, you would probably start seeing some of that behavior. But the business we're gaining right now is really being created because the innovation on our product and the quality of the product, and it's really standing on its own. Chuck Cerankosky: And then secondly, Rodney. Are you seeing regional differences and the shifts in the way people moved in and out of e-commerce over the course of the quarter. Rodney McMullen: Yes, we would. And it's really wherever COVID is higher. You would see the shift to more online, and that's delivery and pickup. And as it moves North, you would see that within the Company. And as I mentioned in my prepared remarks, the things that we're especially proud of is almost every customer that were shopping with us digitally early in the quarter that started -- that stopped shopping digitally started shopping in the stores. And for us, that's really important as part of our overall strategy for seamless, because what we find is after the first year, an online shopper actually comes into the store more often than they did before they became an online shopper. Chuck Cerankosky: And do you quantified what your total e-commerce due to the operating earnings during the quarter. Is there any way to put a number on that, whether smaller loss or is it trending towards a positive number. Rodney McMullen: Well, I'll let Gary. I'll talk a little bit. If you look at within the quarter, obviously, we had the start-up costs of our sheds in Florida and Monroe. So that created a headwind, obviously, that was reflected in our guidance that we gave for the year and our updated guidance. And Gary, if there's any additional. Gary Millerchip: I think we talked about the profitability of digital in different ways. When we add in all the fixed costs, we're more on the journey towards profitability as you are alluding to. We generally focus there on what's the pass-through rate on the transactions as we're growing customers because what we find in Digital, as you know, is the customer becomes more loyal, overall to Kroger and we see about 50% or so incrementality as the customer engages digitally. As we've talked about previously, we've kind of -- when you think back to last year, we're at mid-single-digit pass-through rate compared to a pass-through rate that will be closer to mid to high-teens on a store transaction. And we're on the path to improving that profitability to drive towards doubling the profit rate on the digital transaction. And ultimately talking to get to parity. I would try in making good progress on that journey I mentioned on my prepared comments, we continue to make solid improvements in the efficiency of picking a digital order and over time, we'd expect Ocado to play a role in that as well. Of course, with the automation may provide and with media revenue continuing to grow rapidly, that's also creating a tailwind. So I'd say we're seeing good momentum and on track with where we expected to be with that journey in the quarter. Chuck Cerankosky: Thank you very much. Good luck on the rest of the year. Rodney McMullen: Thanks. Chuck Operator: Our next question comes from Edward Kelly with Wells Fargo, please go ahead. Edward Kelly: Hi, guys. Good morning. I wanted to ask about share repo and the cash balance. So you ended the quarter with a lot of cash again. You're well below your leverage target. Thoughts on the buyback. Is the stock attractive here, I guess is a straightforward question? And what are your thoughts on taking out additional debt to buy back stock. Because with the dry powder this year. I mean, it seems like you could probably take out north of 10% of the shares. Is this a bigger part of delivering 8% to 11% next year. Just kind of curious as to how we should be thinking about all this. Gary Millerchip: Yeah, thanks for the question, Ed, I would say overall, we're not changing our overall financial strategy. As we think about our free cash flow, we continue to start with how can we invest in the business to grow it profitably and sustain growth and we still think there's lots of opportunity to accelerate the model. I we think we got into a little bit of this in our last Investor Day, our goal over time would be stretching our top-line growth on our overall earnings growth so the focus for excess free cash flow. We're certainly looking for where the opportunities as we believe we can continue to lead with Fresh and accelerate with digital to drive that growth. We're certainly going to look at any of those incremental investments against the bar of saying is that going to drive a stronger attempt for investors versus buying back incremental stock. But within our overall framework today, as we obviously continue to invest in the business to grow, we are committed to continuing to return cash to shareholders in the level that we've shared in our current TSR model. As you heard us say we increased the dividend by 17% to reflect really our confidence that we expect to come out of COVID at a higher position from an operating profit perspective as we leave 2021. And we've continued to buy back stock during the quarter and would expect to continue to buy back stock at the current price. We do leverage a great, I think I've referred to this before, so think about it as depending on where the share price is. If the share price is lower, it buys back more stocks during the quarter. If the share price is higher, it buys back less stock because we're not trying to time anything in the market, but really trying to make sure that we're maximizing return on the dollar as we go through the year to take advantage of fluctuations in the prices as it happens during a typical trading period. But we certainly remain committed to returning cash to investors. We start with the excess cash from a point of view of saying, where could we accelerate our growth. And ultimately, we will share more on that as we identify those opportunities, and we'll continue to flex if we believe that there are lays opportunities, then obviously we'll look to make sure we are dynamic and making sure we're deploying excess cash. Edward Kelly: Okay, great. And just a quick follow-up on the gross margin is the two-year number for Q2, is that a good way to think about the back half, or was inflation accelerating and supply chain, does that headwind grow a little bit in the back half? Just curious as how we should be thinking about that. Gary Millerchip: I think actually Q2 is a pretty good sort of overall -- again, we don't go into specific numbers, but I think directionally, it's a helpful way to think about the back half of the year. As you think about overall earnings, we would think gross margin continue to be a headwind, part of that being warehouse and transportation, part of it being shrink. We're also continuing to invest in the business where we think it makes sense and give value to customers. OG&A will continue to be a tailwind, but we will see less COVID cycling, if you like, in the back half of the year. So that's why the overall impact in our operating profit won't be as strong in the back half of the year. But I think if you think about Q2 in general, outside of that cycling of extra COVID cost last year in the first half of the year, I think is a pretty good way to think about the back half of the year. Edward Kelly: Great. Thank you. Operator: Our next question comes from Michael Montani with Evercore ISI, please go ahead. Michael Montani: Great. Thank you for taking the question. I was just hoping to get a little bit of incremental color around the ID sales. Has the transaction count turned positive at this point. And then secondly, if you could provide some incremental color around how much inflation you were able to kind of pass-through to consumers vis-a-vis what you saw in COGS. Just because at times in the past you have given some helpful context there. Rodney McMullen: If you look at transaction count, we would continue to have slightly declining or kind of flat transaction count. It really depends on if you're looking at versus prior year or 2 years. If you look at basket size per purchase, it significantly increased in terms of when customers come into the store, they buy significantly more. Or if you look at our online shop customer, that customers basket size is significantly higher than a basket when somebody comes into a store. So both from a digital standpoint and individual transactions standpoint, customers are significantly buying more and it's all -- it's really three things. One, they are buying more. They're also buying premiumization of product where they've upgraded the products they buy. And they also are buying bigger precise products, as well. So if you think about toilet paper, very few customers now can or will even buy a 4-pack of toilet paper, where most customers now are buying 24-pack or even bigger, in some cases. In terms of the inflation, Gary, I'll let you answer Michael's question on that. Gary Millerchip: Thanks for the question. Michael. We've laid out before I know on the call, we have a very robust process for how we manage when we see inflationary cost flowing through from suppliers. And first of all, we challenge to make sure that we feel confident that legitimate because obviously, we want to make sure that they truly are structural cost changes. And then if they are, we absolutely have a process for passing them on to the customer. I would say that generally we've been very comfortable with our ability to pass on the increases that we've seen at this point, and we would expect that to continue to be the case looking into the back half of the year. As you saw during the quarter, we are continuing to invest in price where we think it makes sense. Sometimes that might be in areas where we're seeing inflation. Sometimes it might be where we're investing because we believe it's the right thing to do to grow customer long-term loyalty and other places through our personalization strategies. So overall, we feel good about the way in which we are able to manage the inflation within the business. At the same time, we are continuing to invest because we believe that's going to be important to grow share in the long term as well. Michael Montani: Got it. Thank you. Rodney McMullen: Thank you. Operator: Our next question comes from Karen Short with Barclays. Please go ahead. Rodney McMullen: Karen, are you there? Karen Short: Oh sorry. Can you hear me now? Rodney McMullen: Yeah, yes. Karen Short: Sorry about that. Yes. So I heard a couple of questions just related to guidance. Gary, you mentioned that the vaccine admin fee kind of netted out. With respect to other initiatives that you had in, I guess, health and wellness in general. I'm just wondering if you could give a little more color on that because it was very sizable and one of your competitors, in terms of basis point contribution to gross margin. And then other model questions. So I just wanted to clarify what your actual LIFO expectations are for the year because that's obviously relevant for EPS. And then what your COVID costs were in the quarter and what your expectations for COVID costs will be for the rest of the year. And then I had one other bigger picture question. Gary Millerchip: Sure. Thanks, Karen. On the pharmacy side of things. Yes, so essentially, as you know, we operate little clinics as well in a number of our stores, multiple of stores have little clinics facilities. And in our pharmacy core business, we continue to support the COVID vaccines. So my comment earlier was, when you look at the total health and wellness business as we pivoted resources to do more COVID vaccinations. And as we provide you that support, whether it be through offsite locations all through our own facilities. And you look at the total impact of the pharmacy business as customers shifted to more COVID vaccines, and less of the newer prescriptions if you like, even though we grew script count overall during the quarter, and continue to grow script count. If I look at the total impact on the health and wellness business for the quarter and the year-to-date, there wouldn't be a material overall outside the business time performance. So there's certainly if you look to the COVID vaccines in isolation, they would have created an incremental value to the health and wellness business, but it was offset by lower revenue or lower margin impact on other parts of that business, so netted out to being on plan if you like. And as we look at the back half of the year, I wouldn't expect it to be a reason that we have an incremental headwind in margin because of having less COVID vaccinations in the back half of the year, as things start to return. We certainly expect some vaccine in the back half of the year, but things start to return a little bit more to normal and less of a spike in vaccines compared to what we saw in the first half of the year. From a LIFO perspective, I think you probably know, it's not really an easy thing to predict, because LIFO is one data point at the end of the year. As we looked at the data points so far this year, we're seeing an inflation. We use those spots to predict where it would be. I think the best guidance we could give you is if you take the year-to-date performance in LIFO that we charged to the P&L. And then growth effectively for the full-year that would be essentially our full-year expectation based on the data points that we've seen to this point in the year and our outlook, but LIFO is notoriously difficult to predict. So we're giving you our best estimate, but at the end of the day, it'll be driven by accounting roles in a data points towards the end of the year. But I think the best indication we can give you at this point to use the year-to-date performance in gross that up for the year is our best estimate. Rodney McMullen: In essence annualizes divided by 7 times earnings. Gary Millerchip: Exactly. Rodney McMullen: Yeah. Karen Short: Great and then just COVID? Rodney McMullen: Costs for the quarter and -- Gary Millerchip: Oh, yeah. As mentioned earlier, we've certainly saw a significantly greater cost in the first half of last year as a Company, we adapted and learned how to operate more efficiently. We would certainly see continued COVID costs in the back half of this year. But slightly less cost from last year, we would expect it to be capped as $100 million a quarter. But sadly, we're still seeing incremental costs in some of the areas that you would probably expect when you think about how we continue to operate through COVID, we still have masks costs during the quarter, we still have cleaning costs, we still have extended leave of absence for any associate that are identified as having the COVID virus has been diagnosed as positive COVID case. So those would be the kind of cost that we would see, and we've been expected it to be a little bit less than a $100 million a quarter as we look at the back half of the year. And still being a slight tailwind year-over-year. But nothing like what we have seen in the first half of 2020. Karen Short: Okay. And then just my bigger picture question is on Florida. So with respect to Ocado. I'm curious, Rodney, on your early learnings from Florida. And whether you think that you may want to emphasize opening sheds in market where you actually don't have physical locations, or any thoughts on where you're at on that philosophy in terms of markets where you have a high market share, markets where you have middle-market share, markets where you have no presence, based on what you know. so far? Rodney McMullen: It's a great question, but we're still early in the process of answering that. And if you look in Florida, we are tracking ahead of where we thought we would be at this point. And the thing that I'm especially proud of our teams in Florida is our Net Promoter Scores are incredibly strong. I mean, mind-boggling strong and made up in the neighborhood of best-in-class across all industries. And as you know, food retail usually struggles with having Net Promoter Scores that are up in the Apple neighborhood and things like that. So I'm incredibly proud of what our teams are doing in terms of creating the experience for the customer. And I appreciate and like your question. I would say we're still early in the process and we continue to learn every day on our ability to ramp up a facility in a new market. Certainly, it's easier communicating to the customer in new markets, our markets where our share isn't as high. And that was one of the reasons why we picked Florida and picked Monroe here outside of Cincinnati was to learn how to integrate it within our existing infrastructure, and then having something from the ground up. And I would expect over time, we'll learn how to do both of them and we'll be really happy with the results. Karen Short: Great, thanks very much. That's helpful. Operator: Our last question comes from Rupesh Parikh with Oppenheimer, please go ahead. Rupesh Parikh: Good morning. Thanks for taking my question and fitting me in. So I guess just going back to the gross margin headwinds during the quarter that you saw. Today caught a shrink in supply chain. It sounds like maybe half the pressure that you saw during the quarter. I was curious if you see those headwinds on the shrink and supply chain at all transitory? Rodney McMullen: I think incrementally, yes. But if you look at shrink, I think shrink will remain higher. Now we will go through and do all kinds of process changes to try to minimize shrink. But we are being more aggressive. And Christine Wheatley, which is our General Counsel, is also working with some trade associations to try to start working on it in a broader group, not just Kroger specific when you look at organized crime. And I know I was reading Home Depot's earnings call and they talked about the same thing. So we do believe it will be important to partner with the government, and the way products are able to be sold in the marketplace. So I do think there's things we will do to improve. But some of it will be a headwind until we are able to address that. On supply chain, I think of a lot of that will be transitory. But you still have to manage through it. Rupesh Parikh: Okay, great. And then maybe just one follow-up question, we're hearing more and more from suppliers lately of challenges in the supply chain and being able to fulfill all the consumer demand out there. So I was just curious how you're out-of-stock right now trending versus what you've seen in the recent months? Rodney McMullen: Yeah. I would say that we were slightly higher. Now, our teams had going in then continuing to aggressively forward by inventory. Originally, it was because of the inflation pressures. It's ended up because of some of the supply chain issues. It's also one of the benefits of a lot of our own brands. And we manufacture a lot of our own brands. So our plants are aggressively pushing capacity. So I would say that it is a headwind, it's slightly worse than it was. But we continue to work on minimizing -- maximizing the in-stocks. Rupesh Parikh: Okay, great. Thank you. Rodney McMullen: Thank you. Appreciate it. But before we conclude today's call, I'd like to take a moment to remember the tragic events that took place nearly 20 years ago, 20 years ago tomorrow. And to honor the lives lost on September 11, 2001. And as always, I'd like to take a moment to address our associates who are listening in. Thank you for delivering an outstanding performance this quarter and continuing to support our communities through the pandemic. As the number of COVID-19 cases continue to rise due to the rapid spread of the Delta variant. I want to affirm that health and safety of our associates and customers remain our top priority. We are doing everything we can do to make sure that the vaccine is accessible and available to you and our customers wherever they are. I am so proud of our Kroger Health team, who have already administrated 6.7 million doses of the COVID-19 vaccine. Thank you to our talented healthcare professionals for being there for our communities, and for addressing questions for our customers about the vaccine and about getting the vaccine. I'm often reminded of the impact our associates have on the lives of our customers. Recently, one of our pharmacy managers in Atlanta saved a life of a customer that was having allergic reaction in one of our stores. This is just one of the many examples that in extraordinary ways, our associates care for those around them. Thank you for inspiring me every day. And thank you for all you do every day to be there for our customers, our communities, and each other. That concludes today's call. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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Kroger Co. (NYSE:KR) Financial Overview and Merger Update

Kroger Co. (NYSE:KR) is a major player in the retail industry, operating numerous grocery stores across the United States. The company is known for its wide range of products, including fresh food, groceries, and household items. Kroger competes with other large retailers like Walmart and Target, striving to maintain its market share through strategic initiatives and customer-focused services.

On December 5, 2024, Kroger reported earnings per share (EPS) of $0.98, aligning with the estimated EPS. However, the company's revenue of $33.63 billion fell short of the expected $34.19 billion. This revenue miss reflects a broader trend, as highlighted by the company's third-quarter results, where revenue also missed Wall Street expectations, coming in at $33.63 billion against an anticipated $34.22 billion.

A significant factor influencing Kroger's future is its proposed merger with Albertsons (ACI). This merger is crucial for Kroger's strategy and market position. However, the merger faces a legal challenge from the Federal Trade Commission (FTC), which could impact its approval. The outcome of this merger is pivotal, as it could reshape Kroger's competitive landscape and growth trajectory.

Despite the revenue shortfall, Kroger's adjusted EPS of $0.98 slightly exceeded estimates by a penny after excluding one-time charges related to the merger. This indicates that the company is managing its core operations effectively, even amidst challenges. Interim CFO Todd Foley noted positive customer trends, which are expected to boost sales, although CEO Rodney McMullen expressed concerns about the uncertain macroeconomic environment.

Kroger's financial metrics provide insight into its market valuation and financial health. With a price-to-earnings (P/E) ratio of 15.70, the market values its earnings moderately. The company's price-to-sales ratio of 0.29 and enterprise value to sales ratio of 0.49 suggest a reasonable valuation relative to sales. Additionally, Kroger's current ratio of 1.54 indicates a solid liquidity position, while a debt-to-equity ratio of 2.31 highlights its financial leverage.

Kroger Co. (NYSE: KR) Stock Analysis: A Look into Analysts' Optimism

  • Average price target for Kroger has increased to $73 from $63 three months ago, indicating a positive shift in analysts' expectations.
  • Jefferies upgraded Kroger to a Buy rating, with a potential for double-digit earnings growth, especially if the Albertsons deal closes.
  • Kroger's strategic financial maneuvers, such as retaining $6 billion of debt for potential share buybacks, could support its stock regardless of the Albertsons deal outcome.

The Kroger Co. (NYSE: KR) is a major player in the retail industry, operating a chain of supermarkets across the United States. Known for its wide range of grocery products and services, Kroger competes with other retail giants like Walmart and Albertsons. Recently, analysts have shown increased optimism about Kroger's stock, as reflected in the evolving consensus price targets.

Last month, the average price target for Kroger was $73, indicating a positive shift in analysts' expectations. This optimism may be linked to Kroger's strong track record of surpassing earnings expectations, as highlighted by BMO Capital analyst Kelly Bania, who set a price target of $57. Despite this lower target, the overall sentiment remains bullish, with Jefferies upgrading Kroger to a Buy rating and raising the target to $73.

Three months ago, the average price target was $63, showing a significant increase in analysts' expectations over the past quarter. This upward trend aligns with Jefferies' analysis, which suggests that Kroger could achieve double-digit earnings growth if the Albertsons deal closes. Even if the deal doesn't go through, Kroger's strategic financial maneuvers, such as retaining $6 billion of debt for potential share buybacks, could still support its stock.

A year ago, the average price target was $65.33, indicating a steady upward trend in analysts' confidence in Kroger's growth potential. This confidence is further supported by Kroger's improving foot traffic and a more profitable fuel business, as noted by Jefferies. These factors contribute to the positive outlook on Kroger's future performance, despite the stock's recent 1.47% decrease.

Investors should keep an eye on Kroger's upcoming earnings report, as it could provide further insights into the company's financial health and strategic direction. The report is part of a significant week for the market, with other major companies like Salesforce and Dollar Tree also releasing their earnings. Additionally, the release of November jobs data could impact market movements, making it a crucial time for investors to stay informed.

Kroger Surpasses Q2 Earnings Expectations, Shares Gain 6%

Kroger (NYSE:KR) reported strong second-quarter earnings, surpassing expectations and leading the grocery giant to raise the lower end of its full-year sales outlook. Following the announcement, the company’s stock surged over 6% intra-day today.

For the quarter, Kroger delivered adjusted earnings per share of $0.93, beating analysts' predictions of $0.91. Although revenue came in slightly below the anticipated $34.08 billion at $33.91 billion, it marked a 1.3% increase year-over-year when excluding fuel sales.

Kroger's identical sales without fuel rose 1.2% compared to the same quarter last year, fueled by an uptick in digital sales and customer traffic. The company reported an 11% boost in digital sales and a 14% increase in the number of e-commerce households.

In light of its performance, Kroger raised the lower end of its full-year identical sales guidance (excluding fuel) to a range of 0.75% to 1.75%. The company also reaffirmed its full-year 2025 earnings forecast, projecting between $4.30 and $4.50 per share, aligning with the Street estimate of $4.43 per share.

Kroger Co. (NYSE:KR) Quarterly Earnings Preview Amid Legal and Merger Challenges

Kroger Co. (NYSE:KR), a leading grocery chain in the United States, is on the cusp of revealing its quarterly earnings before the market opens on Thursday, September 12, 2024. Analysts from Wall Street have pegged the earnings per share (EPS) at $0.91, with revenue expectations hovering around $34.07 billion for the quarter. This report is particularly significant as it comes amidst Kroger's ongoing legal battles and a proposed merger with Albertsons, which has been a subject of regulatory scrutiny.

According to Zacks Equity Research, the anticipated earnings of $0.91 per share represent a 5.2% decrease from the same period last year, while the expected revenue of approximately $34.09 billion marks a modest 0.7% year-over-year increase. These projections have remained stable over the last 30 days, indicating a consensus among analysts regarding Kroger's financial performance. This stability in EPS forecasts, despite the backdrop of legal and regulatory challenges, suggests a level of confidence in Kroger's ability to navigate its current hurdles.

Kroger's financial health and market performance are under the microscope, especially considering the broader implications of its proposed $24.6 billion merger with Albertsons. The Federal Trade Commission (FTC) has raised concerns that the merger could lead to reduced competition and higher prices in the grocery sector. Despite these challenges, Kroger's slight revenue increase from $33.85 billion in the same quarter of the previous year to an expected $34.04 billion demonstrates resilience. This is noteworthy, especially after a period marked by a net loss due to a $1.4 billion charge related to an opioid settlement.

The company's financial metrics provide further insight into its valuation and market position. With a price-to-earnings (P/E) ratio of approximately 17.44, Kroger is seen by investors as a company worth investing in, despite the earnings decrease. The price-to-sales (P/S) ratio of about 0.25 and an enterprise value to sales (EV/Sales) ratio of roughly 0.36 indicate that the stock is trading at a relatively low value compared to its sales, which could attract investors looking for undervalued stocks. Additionally, the debt-to-equity (D/E) ratio of approximately 0.89 and a current ratio of about 0.86 highlight the company's financial leverage and liquidity challenges, respectively.

As Kroger prepares to release its quarterly earnings, the company's performance will not only reflect its operational success but also its strategic positioning amid regulatory scrutiny and competitive pressures. The outcome of this earnings report could influence investor sentiment and shape the narrative around Kroger's proposed merger with Albertsons, making it a pivotal moment for the company and its stakeholders.

Kroger Shares Drop 3% Despite Better Than Expected Q1 Results

Kroger (NYSE:KR) shares dropped more than 3% intra-day today despite the grocery chain reporting Q1 earnings and revenue that surpassed analyst expectations.

The company posted EPS of $1.43, beating the Street estimate of $1.34. Revenue for the quarter also exceeded forecasts, coming in at $45.27 billion compared to the anticipated $44.93 billion.

Kroger's first-quarter performance was characterized by a modest 0.5% increase in identical sales, excluding fuel, and a total sales increase of 0.6% compared to the same period last year, also excluding fuel.

The company saw more than 8% growth in digital sales, with delivery and pickup services experiencing double-digit growth, demonstrating the success of its market strategy.

Despite a challenging economic environment, Kroger's focus on providing value and personalized promotions resonated with customers. This approach resulted in an increase in total households, loyal households, and customer visits.

The company's CEO attributed the strong results to long-term investments in diversifying Kroger's business model, which have enabled effective management of economic cycles.

Looking forward, Kroger reaffirmed its full-year 2024 guidance. The company projects identical sales, excluding fuel, to grow between 0.25% and 1.75%. Additionally, it expects an adjusted EPS between $4.30 and $4.50, compared to the Street estimate of $4.43.

Kroger's Q3 Earnings Review

Kroger (NYSE:KR) revised its sales growth forecast, citing current economic pressures and a decrease in food-at-home inflation as the holiday season approaches.

The company now predicts that its identical sales excluding fuel will increase by 0.6% to 1.0%. This is a reduction from its previous forecast of a 1.0% to 2.0% rise. Rodney McMullen, Kroger's CEO, stated that the company plans to continue offering lower prices and personalized promotions to address the tightening of consumer spending habits.

Despite these challenging conditions, Kroger has adjusted its full-year net earnings guidance upwards, setting the lower limit of the range at $4.50 to $4.60.

The company also reported an adjusted per-share income of $0.95 for the third quarter, exceeding expectations. This success was largely attributed to strong performance in its gas stations business.

Kroger's Q3 Earnings Review

Kroger (NYSE:KR) revised its sales growth forecast, citing current economic pressures and a decrease in food-at-home inflation as the holiday season approaches.

The company now predicts that its identical sales excluding fuel will increase by 0.6% to 1.0%. This is a reduction from its previous forecast of a 1.0% to 2.0% rise. Rodney McMullen, Kroger's CEO, stated that the company plans to continue offering lower prices and personalized promotions to address the tightening of consumer spending habits.

Despite these challenging conditions, Kroger has adjusted its full-year net earnings guidance upwards, setting the lower limit of the range at $4.50 to $4.60.

The company also reported an adjusted per-share income of $0.95 for the third quarter, exceeding expectations. This success was largely attributed to strong performance in its gas stations business.