Kroger says it expects to exceed its 2020 outlook after the grocer reported a spectacular quarter of sales and profit due to a crush of pantry-loading shoppers during the pandemic.
The company reported sales of $42 billion in the first quarter ended May 23, compared to $37 billion for the same period last year. Same-store sales rose 19%. Kroger’s profit increased 57% to $1.21 billion, beating analyst expectations of $876 million.
Kroger's digital sales logged a stunning 92% increase as more shoppers get their groceries online than ever before. Shoppers are ordering more groceries online to avoid going to stores and they are making bigger purchases. Online grocery sales rose 65% to $6.6 billion in May from March, according to research firm Brick Meets Click. About 43 million customers shopped online last month, up from 39.5 million in March.
Earlier this month the Kroger Co. and U.K. grocery e-commerce provider Ocado announced they are continuing to expand their partnership with three new customer fulfillment centers (CFCs) slated for the Great Lakes, Pacific Northwest and West regions – all of them smaller than initial sites, and all before the companies’ collaboration has even gone live.
"The COVID-19 pandemic has dramatically changed the outlook for food retail in 2020 and we continue to monitor, evaluate and adjust our plans to address the impact to our business," said Kroger CFO Gary Millerchip. "While we expect to exceed the outlook shared in our April 1 business update for identical sales without fuel, adjusted FIFO operating profit, adjusted EPS and adjusted free cash flow, the company is not able to forecast the extent of such upside."
Despite higher physical and online sales in Q1, Millerchip cited unknown factors related to the long-term impact of COVID-19 that could influence the retailer's financial results for the remainder of 2020, such as continued investments to help customers and employees, uncertainty surrounding consumer behavior, restrictions and what will be the new normal, and the potential long-term shift in customers eating more food at home.
"Kroger's financial model has proven to be resilient throughout the economic cycle. We remain confident in our business model as well as our ability to generate strong free cash flow and achieve sustainable and attractive total shareholder returns," Millerchip added.
Gross margin at Kroger was 24.3% of sales for the first quarter. Net earnings rose 57% to $1.21 billion, or $1.52 per share. Excluding one-time items, Kroger earned $1.22 per share, beating market estimates of $1.09.
During the quarter, Kroger made the decision to contribute an additional $236 million to multi-employer pension plans, helping stabilize associates' future benefits.
"The COVID-19 pandemic and the most recent instances of racial injustice have changed our country in unmistakable ways, not the least of which is the devastating loss of life and livelihood that has affected so many Americans," said CEO Rodney McMullen. "Kroger remains guided by our purpose and our values. I am proud of our associates who stepped up when we were called to be there for our customers, communities and each other. Our company is proud to stand with our Black associates, customers and communities against racism and for a more just and equitable society."
Kroger also provided an update on its three-year transformation plan, Restock Kroger.
"Under Restock Kroger, we have made significant investments over the last several years to establish a seamless digital ecosystem, strengthen Our Brands and our personalization capabilities, and to enhance product freshness and quality," McMullen said. "These investments helped Kroger deliver improved results in 2019, a strong start to the quarter, and very much came to the forefront as we provided our customers with the fresh food and essentials they have needed during the pandemic."
Kroger said its most urgent priority during the COVID-19 pandemic has been to provide a safe environment for associates and customers with open stores, e-commerce solutions and an efficiently operating supply chain so that its communities have access to fresh, affordable food and essentials.
The Kroger Co. has announced investments of more than $830 million to reward associates and safeguard employees, customers and communities. Key actions to support employees, customers and communities, include:
- Offered free COVID-19 testing to associates based on symptoms and medical need
- Provided COVID-19 Emergency Leave to associates
- Recognized and rewarded associates with special premium pay and bonuses in March, April, May and June in addition to ongoing comprehensive benefits packages including health care coverage and retirement benefits that many competitors don't offer
- Added ExpressPay – a new benefit that allows most hourly associates to access pay faster, putting money in their pockets sooner than usual
- Promoted access to mental health services and other benefits to support associates' mental and physical well-being
- Contributed $15 million to the organization's Helping Hands fund to provide financial support to certain associates experiencing hardships due to COVID-19, including childcare costs
- Provided masks for all associates and encouraged them to stay home if they are sick
- Enforced customer capacity limits and encouraged customers to wear masks in stores or alternatively use e-commerce services
- Installed partitions at check lanes, pharmacy and Starbucks registers across the enterprise
- Offered a no-contact delivery option, low-contact pickup service and ship-to-home orders
- Began accepting SNAP/EBT benefits for Kroger's low-contact Pickup service across the country
- Continued to expand contactless payment solutions like Kroger Pay
- Introduced free telenutrition service to help customers shop for, prepare and enjoy healthy fresh and non-perishable foods during the pandemic
- Hired more than 100,000 new associates
- Tested 82,199 patients in 15 states as one of only five U.S. retailers to develop, staff and expand a free COVID testing model in partnership with the federal and state governments
- Activated The Kroger Co. Zero Hunger | Zero Waste Foundation's Emergency COVID-19 Response Fund to help families disproportionately impacted by COVID-19. So far, Kroger and the Foundation have committed more than $8 million to nonprofit organizations addressing urgent COVID-19 response efforts
In response to the most recent instances of racial injustice, the company is taking steps to be a part of the solution toward a more just and equitable society, including:
- Hosting virtual listening sessions to hear directly from Black associates and how we can better support them
- Shared an Allyship Guide developed by its African American Associate Resource Group
- Establishing a $5 million fund via The Kroger Co. Foundation to support the advancement of diversity, equity and inclusion in communities
"We are proud of our heroic and dedicated associates who are serving our customers when they need us most. As America enters the next phase of the pandemic, we know that our associates will continue to rise to meet the challenge, delivering Fresh for Everyone and helping our customers, communities and America emerge even stronger," McMullen added.
Cincinnati-based Kroger employs nearly half a million associates who serve 9 million-plus customers daily through a seamless digital shopping experience and 2,757 retail food stores under a variety of banner names. The company is No. 3 on The PG 100, Progressive Grocer’s 2020 list of the top food retailers in the United States.