Kroger hit by higher costs, offsetting larger baskets of groceries

Kroger said on Friday that shoppers filled large baskets of groceries in the second fiscal quarter. They bought larger items, such as 24 packs of toilet paper. And they frequently filled the refrigerators, as they prepared more meals at home.

The company’s comparable store sales, a key industry metric, fell 0.6% over the three-month period, almost matching the increased level of grocery sales over the period of last year. He raised his outlook for the rest of the year.

Still, shares of Kroger – the nation’s largest supermarket operator – fell about 7% on Friday as investors worried about a less favorable trend: falling profits and squeezing margins.

CEO Rodney McMullen said on a results conference call that “home food trends remain persistent.” He said sales have grown year on year across produce, flower, deli and bakery departments, although they face tough comparisons.

But the company is under pressure from rising supply chain costs, rising flights and rising food prices, according to Kroger’s CFO Gary Millerchip. He said the grocer has to pay more for transportation and storage space. He said this will continue into the second half of the year.

In addition, the grocer faces inflation. Like other retailers, Kroger has had to debate when to raise prices for customers and when to eat the cost.

Millerchip said the grocer selectively curtailed products to attract shoppers.

In a research note, JP Morgan analyst Ken Goldman questioned this approach. He said Kroger would have to pass more of those costs on to buyers, who have become accustomed to seeing higher prices everywhere and have shown they aren’t afraid of them.

Additionally, Goldman said, Kroger’s share price could be due to a sell-off. It has already risen significantly during the pandemic and hit a record high of $ 47.99 last week. Shares are up about 34% this year.

McMullen said inflation had at least one benefit for the retailer: While shoppers see the price of some consumer packaged goods rise, some are purchasing similar snacks, food or drinks from Kroger’s private labels.

Kroger expects to earn between $ 3.25 and $ 3.35 per share, after adjustments, in fiscal 2021, against an earlier forecast of $ 2.95 to $ 3.10 per share. In the last quarter, Kroger earned $ 467 million, or 61 cents per share, on revenue of $ 31.68 billion. Adjusted earnings of 80 cents per share exceeded estimates.