Kroger’s Q3 ID Sales Edge Up, But Total Company Sales Down

The Kroger Co. has reported results of its third quarter ended Nov. 9, which included a 2.3% increase in identical sales without fuel, operating profit of $828 million, earnings per share (EPS) of 84 cents, and adjusted FIFO operating profit of $1,017 million and adjusted EPS of 98 cents. Also during the quarter, Kroger achieved solid adjusted free cash flow, grew digital sales by 11%, experienced Our Brands sales growth that outpaced total grocery sales growth, and increased total households and loyal households.

In Q3, Kroger closed the sale of its specialty pharmacy business (KSP) on Oct. 4 for $464 million. The sale lowered total company sales in the quarter by about $340 million, compared with the same period last year, and annualized sales will be around $3 billion lower going forward. Since KSP was a low-margin business, the sale of the business boosted both Kroger's gross margin and operating, general and administrative costs as a rate of sales, but it had no material effect on operating profit.

Kroger’s total company sales were $33.6 billion in Q3, versus $34.0 billion for the same period last year. The company attributed this decrease in sales to the sale of KSP and to lower fuel sales, which was mainly the result of a lower average retail price per gallon compared with last year. Excluding fuel and KSP, sales increased 2.7% compared with the same period last year. Gross margin was 22.9% of sales for Q3, while the FIFO gross margin rate, excluding fuel, rose 51 basis points from the same period last year. According to Kroger, the rate increase was primarily attributable to the sale of KSP, Our Brands performance and lower shrink, partly offset by lower pharmacy margins.

“Kroger achieved strong sales results in the third quarter, led by our pharmacy and digital performance, which reflects the strength and diversity of our model,” noted Rodney McMullen, the company’s chairman and CEO. “We continued to grow total households this quarter by delivering exceptional value for customers, with low prices, personalized offers and great-quality Our Brands products, all through a seamless shopping experience. We appreciate our associates for their continued efforts to elevate the customer experience, delivering on our key priorities of full, fresh and friendly. While we expect the macroeconomic environment to remain uncertain near term, the strength of our model gives us confidence in our ability to deliver value for customers and invest in our associates while generating attractive and sustainable returns for shareholders.”

On the subject of the company’s pending merger with Albertsons, McMullen said: “As we await the courts’ rulings in the regulatory challenge to the merger, we remain confident in the facts and the strength of our position. The food industry has always been competitive and will continue to be after this merger. We are committed to closing this merger, because bringing Kroger and Albertsons together will provide meaningful and measurable benefits – lower prices, secure jobs and expanded access to fresh, affordable food – for customers, associates and communities across the country.”