Leaning in on Fresh & Digital, Kroger Logs Higher Q3 Sales

Strong results lead company to raise full-year guidance
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Continuing to execute its Leading with Fresh and Accelerating with Digital strategy, Kroger saw total company sales of $34.2 billion in Q3, up from $31.9 billion in the year-ago period.

For its third quarter of fiscal 2022, which ended Nov. 5, The Kroger Co. reported that identical sales without fuel increased 6.9%, Our Brands identical sales grew 10.4% and digital sales rose 10%. Operating profit was $841 million for the quarter, while adjusted FIFO operating profit was $1,094 million. Earnings per share (EPS) were 55 cents, with adjusted EPS of 88 cents.

“Kroger achieved strong results in the third quarter as we continue to execute our Leading with Fresh and Accelerating with Digital strategy,” noted CEO Rodney McMullen. “Our associates are doing an outstanding job delivering a full, fresh and friendly experience across our seamless store and digital ecosystem. Kroger’s value proposition, which includes providing great quality, fresh products at affordable prices, data-driven promotions, trusted Our Brands products and an industry-leading fuel rewards program, is resonating with shoppers and driving increased customer loyalty. This quarter demonstrates the strength of our approach to growing our business. By delivering for our customers, investing in our associates and supporting our communities, we are creating attractive and sustainable total returns for our shareholders.”

Total company sales were $34.2 billion in the third quarter, versus $31.9 billion for the same period last year. Excluding fuel, sales increased 6.4% compared with the same period last year. Kroger’s gross margin was 21.4% of sales for the third quarter. The FIFO gross-margin rate, excluding fuel, fell five basis points from the same period last year. According to the company, this result reflected Kroger’s ability to effectively manage higher product cost inflation and shrink through strong sourcing practices, while also helping customers manage their budgets and keeping prices competitive. The LIFO charge for the quarter was $152 million, versus a LIFO charge of $93 million for the same period last year, due to higher product cost inflation mainly in grocery.

Noting that it remained committed to investing in the business to drive long-term sustainable net earnings growth, as well as maintaining its current investment grade debt rating, Kroger said that it would continue to pay its quarterly dividend and expected this to increase over time, subject to board approval. The grocer has already paused its share repurchase program to prioritize deleveraging in the wake of the proposed merger with Albertsons

Additionally, based on its results, the company has decided to revise its full-year guidance upward.

“Kroger’s focus on delivering value for customers and our disciplined approach to managing costs in an inflationary environment led to another quarter of strong results,” said CFO Gary Millerchip. “Our consistent execution of our go-to-market strategy continues to build momentum in our business results and gives us the confidence to raise our full-year guidance. We now expect identical sales without fuel to be in the range of 5.1% to 5.3% and adjusted net earnings per diluted share to be in the range of $4.05 to $4.15. The resiliency of Kroger’s value creation model positions us well to navigate different operating environments, and as we look forward, we remain confident in our ability to deliver attractive and sustainable total shareholder returns for investors.”

Among the grocer’s many accomplishments during Q3, it accelerated its fresh produce initiative, with a total of 1,252 stores certified, driving higher identical sales; launched the Our Brands Innovation Summit, a program that aims to uncover new on-trend private-brand items; introduced 147 new Our Brands items, including holiday-specific products; increased delivery sales by 34% over last year, driven by Kroger Boost and customer fulfillment centers; expanded Kroger Precision Marketing’s programmatic advertising marketplace to include Connected TV and video capabilities; had 28 company leaders named by Progressive Grocer as 2022 GenNext Honorees, an award recognizing grocery industry leaders under the age of 40; and held a virtual veteran and military family career expo event.

Serving 60 million households annually nationwide through a digital shopping experience, and almost 2,800 retail food stores under a variety of banner names, Cincinnati-based Kroger is No. 4 on The PG 100, Progressive Grocer’s 2022 list of the top food and consumables retailers in North America.

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