Kroger Continues to Buck Trends with Q2 Performance

The Kroger Co. continues to deliver rock-solid performance topped by same-store sales growth for a staggering 47 consecutive quarters.

“Our team of associates continues to drive our Customer 1st strategy by taking care of our customers in big and small ways,” Kroger Chairman and CEO Rodney McMullen said about the company’s second-quarter financials, announced today. “We continue to earn customer loyalty and gain market share.”

Same-store sales were up 5.3 percent in Q2. Total sales, excluding fuel, increased 5.7 percent in Q2 over the same period last year. Including fuel, sales increased 0.9 percent to $25.5 billion, due to lower retail gasoline prices, compared to $25.3 billion a year ago.

Q2 net earnings were $433 million, or 44 cents per diluted share, up from $347 million, or 35 cents, for the year-ago period.

“We are pleased with our second quarter performance,” McMullen said. “Our core food business continued its strong performance and we benefitted from fuel margins that expanded throughout the quarter.”

Outpacing the industry

Kroger’s long-term financial strategy continues to be to use cash flow from operations to repurchase shares, fund its dividend, increase capital investments and maintain its current investment grade debt rating, while its strong financial position allowed the company to return more than $1 billion to shareholders through buybacks and dividends over the last four quarters. During the second quarter, Kroger repurchased 1.1 million common shares for a total investment of $43 million.

“Its strong financial performance has just defied or bucked every trend in this business,” Meg Major, Progressive Grocer’s chief content editor, told National Public Radio’s Mark Garrison about Kroger on the Marketplace Morning Report's September 11 broadcast.

Kroger’s stock is up 35 percent in the last year amid a lower broader market. The secret appears to be the Cincinnati-based grocery giant’s leveraging of shopper insights data, through its strategic alliance with Dunnhumby, to ensure its “Customer 1st” strategy continues to deliver on its promises.

“We are investing to grow our business for the future while delivering on our promises today,” McMullen said. “For example, our stores are hiring to fill 20,000 new, permanent jobs and we are expanding our digital and ecommerce offerings. Our confidence in Kroger has never been stronger.”

Kroger raised its same-store sales growth guidance, excluding fuel, to a range of 4 percent to 5 percent for fiscal 2015, up from 3.5 percent to 4.5 percent.

Innovation and investment in technology, food and people

McMullen highlighted three areas in which Kroger is investing to broaden its competitive advantages for the future:

Technology: This summer, Kroger expanded its online ordering pilot in Cincinnati to three additional divisions. Order online/store pickup is available in select Kroger stores in Louisville and Indianapolis, and Fred Meyer stores in the Portland area, in addition to Harris Teeter’s successful Express Lane service. Additionally, Kroger is beefing up its efforts to interact with customers in increasingly relevant and meaningful ways via online and mobile. And earlier this summer, Kroger’s electronic temperature monitoring project was named a winner of the CIO 100 Award by CIO Magazine.

Food innovation: Later this month, Kroger will launch a new brand called HemisFares, which brings “the best food finds from around the globe to our food-curious customers for an amazing and authentic eating experience.” McMullen described it as “a guided tour of the best tastes on earth.”

Hiring: Last year, Kroger created 25,000 new jobs and is looking to fill an estimated 20,000 new and permanent positions. Kroger has formalized its military hiring initiatives and joined the “100,000 Job Mission”, a coalition of companies with the common goal of hiring transitioning service members and military veterans.

Kroger previously announced several executive changes, including the appointment of several executive vice presidents, including Fred Morganthall, former president of Harris Teeter, who will be in charge of all of Kroger’s retail divisions.

Kroger operates 2,623 supermarkets and multidepartment stores in 34 states and the District of Columbia under two dozen local banner names including Kroger, City Market, Dillons, Food 4 Less, Fred Meyer, Fry's, Harris Teeter, Jay C, King Soopers, QFC, Ralphs and Smith's.