Kroger Doubles Down on Value as Sales Ease

Macro trends like slowing inflation and wary consumers spur retailer to revise full-year guidance
Lynn Petrak
Senior Editor
a woman smiling for the camera
Kroger store - Indy
Earnings and operating profits were up for the quarter at Kroger, despite headwinds that caused the company to lower its full-year sales projections.

With a Federal Trade Commission (FTC) decision about its merger with Albertsons Cos. on the horizon in early 2024, The Kroger Co. is out with its latest financial results reflecting a cautious consumer base and ongoing economic uncertainty. The company reported that identical sales (excluding fuel) dipped slightly by 0.6% during the quarter and shared that it is lowering its sales guidance for the year.

Overall Q3 sales reached $34 billion, compared to $34.2 billion in the third quarter of 2022. Despite a relative stall in sales, adjusted earnings per share (EPS) came in at $0.95 for the quarter, up from $0.88 last year, and Kroger’s operating profit increased on a year-over-year (YoY) basis from $841 million to $912 million.

Heading into the last quarter of its fiscal year, Kroger revised its full-year outlook, projecting identical sales without fuel to land between 0.6% and 1%, and adjusted first-in, first-out (FIFO) operating profit to hit $4.9-$5.0 billion. “Looking to the rest of the year, we are updating our full-year guidance to reflect the impact of near-term economic pressures and food-at-home disinflation,” explained CFO Gary Millerchip, adding, “At the same time, we are confident in our ability to navigate these near-term headwinds and we are raising the lower end of our full-year adjusted net earnings per diluted share guidance range. We now expect adjusted EPS to be between $4.50 to $4.60.”

To Millerchip’s point, the sales softening comes as inflation continues to ease and notion of a deflationary environment is even bubbling up as a possibility. The U.S. Department of Agriculture (USDA) reported this week that it anticipates that food inflation will slow to about 3% in 2024, about half of the rate of 2023.

In the Nov. 30 earnings call, Millerchip and Kroger Chairman and CEO Rodney McMullen said that the inflation climate remains in flux. “We continue to look at the data points we see both internally and externally," Millership reported.  "Our view right now – and we recognize we don’t have a perfect crystal ball  - is that overall, most of the data we’re seeing tends to point toward a more typical year of food at home, with food at home inflation in the low single-digit range. There are different scenarios that can play out, but that would be the data we’re watching.”

Added McMullen: “One of the things Gary always reminds me of is that if you look over the last 50 years, there’s only been two years  where there has been actual deflation in a year. We’ve been able to maintain and create a strong business results in all business environments, whether inflationary or deflationary – you just manage accordingly.”

Delivering value remains a core commitment, McMullen said. “As consumer spending tightens, we are focused on providing customers with exceptional value. By maintaining our long-term commitment to lower prices, personalized promotions and rewards, we are growing households and increasing loyalty, positioning Kroger for sustainable future growth,” he noted.

[Read more: “Kroger Breaks Ground on Largest Midwest Store to Date”]

In addition to releasing its topline financial figures, Kroger highlighted some notable third quarter trends. The e-commerce business is accelerating, as delivery sales rose 20% from the third quarter of 2022 due to the strength of Kroger Boost and customer fulfillment centers.

Kroger also shared that 38 of its company leaders were recognized as winners of Progressive Grocer’s GenNext awards. Many of those young leaders were on hand at PG’s recent GroceryImpact event in Orlando, Fla., earlier in the month.

As for the immediacy of the merger with Albertsons, McMullen said in the earnings call that the timetable is on track. “We expect to close in early 2024, as we have all along. We continue to have a cooperative relationship with FTC and other interested parties,” he said, adding, “It’s still too early in terms of specific dates."

Serving more than 11 million customers daily through a digital shopping experience and 2,800 retail food stores under a variety of banner names, Cincinnati-based Kroger is No. 4 on The PG 100, Progressive Grocer’s 2023 list of the top food and consumables retailers in North America. PG also named the company to its Retailers of the Century list. 

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