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Produce, Private Brands Power Kroger's Q3 Comps Gain

Digital sales increase by 21%, but earnings dip
Kroger
Photograph courtesy of Kroger

The Kroger Co. reported nonfuel comparable store sales of 2.5% in its fiscal third quarter—the company’s best quarterly same-store sales performance since announcing its Restock strategy in 2017—which officials said provides a base from which it can build on its ambitions.

The near-term financial picture, however, remained cloudier than investors in the Cincinnati-based grocer might have liked, while earnings in the period came up just short of estimates.

“We are on track with a stable and growing supermarket business as a result of our customer obsession, renewed intensity around operational excellence and continued investment in seamless,” CEO Rodney McMullen said in a conference call discussing results for the period, which ended Nov. 9. “We are growing our supermarket business by focusing on three levers to drive identical sales: fresh, power brands and data and personalization. And we continue to build a seamless ecosystem that is available, relevant and accessible for our customers. All of this combined to generate positive results in the third quarter.”

Sales for the period totaled $28 billion, a 1.1% increase, while digital sales increased 21%. Net earnings totaled $263 million, down 17% from last year’s third quarter, while earning per share came in below estimates at 47 cents per share. Gross margins were down by 24 basis points to 22.1% of sales.

McMullen said the produce department led the way in sales for the quarter, “demonstrating how our store teams are focused on improving everyday execution in ways that are highly relevant to our customers.” Holiday shoppers in the run-up to Thanksgiving traded up, benefitting departments such as wine and cheese.

Own brand sales grew by 3.4% in the period behind 231 new items.

Kroger’s Restock plan involves ongoing investments in talent, price, digital and store experience, with an emphasis on fresh, private brands and personalization.

The plan also involves rigorous hurdles for returns on investment and ongoing cost reductions. This led to the decision announced this week to divest the Lucky’s Market banner, as well as a move to reduce management staff in stores earlier this year. The company took charges in the quarter on both events, with Lucky’s resulting in a $238 million write-off, and the restructuring costing $80 million in severance charges.

Kroger said it expects identical sales growth in the current fourth quarter to be similar to the third-quarter figures, but the quarter could be affected by cycling incremental federal food benefit dollars in the prior-year period.

The company’s implementation of free pickup, introduced last month, is resulting in increases in frequency of shoppers using the service as well as new customers. But officials said they were still evaluating whether to continue the offer.

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