A financial update issued by The Kroger Co. this morning helped to quantify the massive sales lift the retailer is realizing as a result of the coronavirus pandemic—an initial boost from stock-up shoppers followed by an elevated level of sales coming as travel and dining restrictions concentrate food sales in the grocery channel.
The update also helped to underscore a larger message of how trusted grocers can be unique beneficiaries in times of upheaval.
Kroger said same-store sales, excluding fuel, sharply accelerated in March to about 30%, driven by dramatically heightened demand in the middle of the month as consumers stockpiled. That initial spurt has since tapered off, the company added, but remains elevated as shoppers adjust to restrictions on dining and travel and, in many cases, are working from home.
Kroger said it was anticipating a third stage of consumer behavior as those restrictions ease but noted it was “too early to speculate” on both when that would happen or what this “new normal” would look like. However, it acknowledged there could be a long-term shift in food consumed at home.
Given the uncertainty, Kroger is reaffirming its fiscal year sales and earnings guidance despite acknowledging its first-quarter figures would be well above the annual guidance range. That guidance, first issued in November, called for same-store sales of 2.25% or more and adjusted operating profits in the range of $3 billion to $3.1 billion.
The updates come as some competitors, including Target and recently Dollar Tree, have withdrawn their outlooks, noting that their business models—each of which rely more heavily on nonfood sales—have been impacted by rising costs and mix changes that have come with the consumer adjustments.
Kroger also noted its costs were soaring, including investments in worker wages and hiring as it muscles up to meet the higher demand and in supply chain and operations as stores adjust to safety measures and higher volumes. That is interfering with plans to have aggressively reduced its costs this year, it acknowledged.
“Over the past several quarters, we have talked about our successful cost savings initiatives to create future value, and we have plans in place to resume them quickly, when the timing is right,” Chief Financial Officer Gary Millerchip said.
“We are seeing strong sales and are at the same time investing in our business to support our customers and associates through the current uncertainty,” he added.
Kroger said its sales lift was evident as far back as February, when it first experienced shoppers stocking up on items such as hand sanitizer, cleaning products, water, paper products, boxed-meal solutions and health-related products. Volume increases then spiked in March. On March 11, the World health Organization declared the coronavirus a pandemic and signals of dramatic change—including the cancellation of the NBA season—shocked shoppers.
“Customers shop with Kroger in times of uncertainty because it is a brand they trust,” the company noted.
The company also said enhancements in its “seamless ecosystem”—offering e-commerce such as pickup and ship and delivery options—has positioned it to benefit from changing methods of shopping likely to accelerate during the crisis.
“Kroger’s most urgent priority is to provide a safe environment for associates and customers, with open stores, comprehensive digital solutions and an efficiently-operating supply chain, so that our communities have access to fresh, affordable food and essentials,” said Rodney McMullen, Kroger’s chairman and CEO. “We are so proud of our dedicated associates who are on the front lines serving our customers when they need us most. A huge thank you to all of our associates, whose efforts are nothing short of heroic.”
To maintain financial flexibility, Kroger has decided to pause additional share repurchases during the fiscal first quarter. Kroger had already repurchased $355 million shares during the quarter under its $1 billion board authorization announced Nov. 5, leaving $245 million remaining under the authorization. Kroger remains committed to maintaining a net total debt to adjusted EBITDA ratio target range between 2.30 to 2.50.