Kroger’s Solid Q1 Punctuated by Digital, Household Growth

Grocer saw 3.5% increase in sales, 30% boost in delivery sales

6/15/2023

Kroger saw impressive digital and delivery results for the first quarter of 2023.

The Kroger Co. saw a lift in sales for its first quarter, ending May 20, while also growing digital sales 15% and increasing customer households and trips. The grocer notched $45.2 billion in sales for the quarter, compared to $44.6 billion for the same period last year, a 3.5% increase with the exclusion of fuel.

Gross margin was 22.3% of sales for the first quarter. Kroger’s FIFO gross margin rate, excluding fuel, increased 21 basis points over the same period in 2022, and is attributed to strong private label performance, sourcing benefits, lower supply chain costs and the effect of its terminated agreement with Express Scripts. It was partially offset by investments in promotional pricing and higher shrink.

Kroger's net total debt to adjusted EBITDA ratio was 1.34 for the quarter, compared to 1.68 last year, marking a record low ratio.

"Kroger achieved solid first quarter results guided by the execution of our Leading with Fresh and Accelerating with Digital strategy,” said CEO Rodney McMullen. “As more customers are feeling the effects of inflation and economic uncertainty, we are growing customer households by providing fresher products at affordable prices with personalized rewards. Our amazing associates are bringing this strategy to life every day by delivering a full, fresh and friendly shopping experience with zero compromise on quality, selection and convenience.”

Continued McMullen: “Looking forward, Kroger's go-to-market strategy positions us well in a wide range of economic environments to continue to deliver for our customers, invest in our associates and achieve sustainable and attractive returns for shareholders."

During the first quarter, Kroger accelerated its fresh produce initiative, with nearly 1,800 stores now certified. The retailer increased alternative farming offerings to 1,094 stores, and expanded on-demand floral and sushi delivery through its partnership with Uber Eats.

Additionally, the grocer increased delivery sales by 30% over last year, and launched a connected TV collaboration between Disney and Kroger Precision Marketing. Digitally engaged households increased by 13% over last year.

Looking forward, Kroger reaffirmed full-year identical sales without fuel of 1% to 2%, with underlying growth of 2.5% to 3.5% after adjusting for the effect of Express Scripts. Adjusted net earnings per diluted share of $4.45 – $4.60 were also reaffirmed, including an estimated benefit from the 53rd week of approximately $0.15.

"Kroger's first quarter results demonstrate the durability of our business model in a more challenged operating environment,” said CFO Gary Millerchip. “The investments we have made over recent years to deliver for our customers and strengthen our value creation flywheel give us the confidence to reaffirm our full-year identical sales without fuel and adjusted net earnings per diluted share guidance. We delivered strong adjusted free cash flow in the quarter and as a result of improvements in working capital, we are raising our guidance to a range of $2.5 to $2.7 billion for the fiscal year 2023.”

Earlier this month, Kroger announced a $550,000 investment for a new 2,000-square-foot spoke facility in Kentucky’s Boone County, helping to expand its e-commerce reach in the Bluegrass State. The new facility will support the customer fulfillment center currently operating in Monroe, Ohio, and provide customers throughout Cincinnati and northern Kentucky with access to fresh food.

While there have been few recent updates on Kroger’s proposed merger with Albertsons Cos., Albertsons last month called on its Mid-Atlantic division president Jim Perkins to lead planning efforts for SpinCo, the potential Albertsons' subsidiary that the company is prepared to establish immediately prior to merger closing and operate as a standalone public company. This would involve the potential divestiture of between 100 and 375 stores as part of regulatory approval.

Serving over 11 million customers daily through digital shopping and 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. Boise, Idaho-based Albertsons operates more than 2,200 retail stores with 1,700-plus pharmacies, 402 associated fuel centers, 22 dedicated distribution centers and 20 manufacturing facilities in 34 states. The company is No. 9 on The PG 100. PG also named both companies as Retailers of the Century.