Kroger on Thursday raised its forecast for the year after stronger fiscal third-quarter sales topped Wall Street expectations and inflation continued to push up the prices shoppers pay for milk, eggs and other groceries.
Kroger CEO Rodney McMullen said the company is attracting shoppers by offering value. In a news release, he said that is “resonating with shoppers and driving increased customer loyalty” with its private-label grocery brands, affordable fresh foods, data-driven promotions and fuel rewards program.
Here’s what Kroger reported for the three-month period ended Nov. 5, compared with Refinitiv consensus estimates:
Earnings per share: 88 cents adjusted vs. 82 cents expected
Revenue: $34.2 billion vs. $33.96 billion expected
Grocery has been a strong driver of retail sales as inflation hovers near four-decade highs. As some shoppers skip over big-ticket items or pull back on discretionary purchases, retailers that sell food and necessities have attracted a steadier stream of customers.
Walmart, the country’s largest grocer by revenue, also raised its full-year outlook after reporting a strong third quarter. The big-box retailer said its lower-priced groceries drew more shoppers — including a growing number of families with an annual household income of more than $100,000 a year.
At Kroger, identical sales rose 6.9%, excluding fuel, in the third quarter. The industry-specific metric includes sales at supermarkets that have been operating continuously for at least 15 months. That exceeded expectations of 4% growth, according to FactSet.
The operator of Ralphs, Fred Meyer and other supermarket chains now expects the metric to climb by 5.1% to 5.3% for the year. It previously forecast growth of 4% to 4.5%.
Net income in the third quarter fell to $398 million, or 55 cents a share, from $483 million, or 64 cents a share a year earlier.
For the full year, Kroger now anticipates adjusted net earnings to range from $4.05 to $4.15. It had previously expected between $3.95 and $4.05.
Some retailers, such as Target and Kohl’s, have reported a noticeable pullback in spending. McMullen said Kroger hasn’t seen the same, in part because cooking at home costs less than dining out.
“When we talked to our customers, they’re telling us they’re changing,” he said. “But so far they’re changing on purchases other than food.”
However, he said customers are eager to save: they’re downloading digital coupons, choosing items on promotion and buying private-label products more than before, he said.
Sales growth for private-label brands, which tend to be cheaper than national name brands, outpaced the company’s overall sales growth in the quarter, McMullen said.
One of those brands is Smart Way, Kroger’s least expensive private-label brand, which sells canned food, bread and other staples. The company launched the product line last quarter as customers faced inflation-related sticker shock. McMullen said Kroger plans to add more products to that line in the coming months.
Kroger announced in October that it plans buy its competitor, Albertsons, in a deal valued at $24.6 billion. The acquisition, if approved, would combine the second- and fourth-largest grocers in the country by revenue, according to data from Numerator, a market researcher.
Kroger has faced pushback on the deal from elected officials and even its own employees, who have said it will hurt competition. Earlier this week, McMullen testified before senators who oppose the merger at a congressional hearing. He argued the combined company would lower food prices and improve the experience for customers, as Kroger competes with grocery giant Walmart and newer industry players like Amazon.
As of Wednesday’s close, shares of Kroger are up about 9% so far this year. The stock closed Wednesday at $49.19, down less than 1%. Its market value is $35.21 billion.
