Kroger Reports Same Sales Growth for Second Quarter and Improves Restock Outlook

Kroger posted virtually flat sales for the second quarter of fiscal 2019, but reported improved same store results and adjusted earnings per share that exceeded Wall Street expectations.

Rodney McMullen, President and CEO, said during a conference call with analysts Thursday that Kroger was not expecting to reach its three-year goal of $ 400 million in operating profit additional by 2020, which is part of the company 's Restock Kroger strategic plan. The news sent shares in the morning before recovering for the afternoon transactions.

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For the quarter ended August 17, Kroger sales totaled $ 28.17 billion, up 0.5% from $ 28.01 billion the year before. Excluding sales of fuels, disposals and mergers, sales rose 2.5 percent, Kroger said. Identical store sales increased 2.2% excluding fuel, compared with a gain of 1.6% for the 2018 quarter.

Operating profit edged up 1.8% to $ 559 million. Kroger has announced a LIFO charge of $ 30 million for the quarter, up from $ 12 million for the same period last year, due to stronger than expected inflation in grocery stores, pharmacies and drug stores. dairy products.

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"Guided by our customer obsession, Kroger has delivered our best identical sales results since the launch of our transformation plan. The measures of our internal customers are improving even faster than our identical sales growth, "McMullen (left) told analysts at the call.

"We continue to make significant investments to redefine the grocery store customer experience. We build a platform of seamless experiences to offer customers what they want, when they want it, anywhere. We know that a seamless experience is essential to the customer experience of today and tomorrow. That's why we continue to invest immensely in our capabilities in this area, "he explained. "Kroger's digital sales grew 31 percent in the second quarter. Pickup and delivery sales growth continued to be around 30% in the quarter. In the future, we expect our digital growth rate to decline from one year to the next due mainly to Home Chef cycling and our disciplined drive to develop [Kroger] Send the customer over other digital offers like Vitacost. "

In the second quarter, Kroger expanded to 1,780 online grocery store sites and 2,225 delivery points, covering over 95% of households in the company's market areas.

"It's important to note that we're starting to see an improvement in the operating profit trends of our digital business," McMullen said during the call. "Our digital sector is becoming less of a factor as we continue to invest in new capabilities to facilitate our transition to seamless technology. However, I want to note that it is still a major investment for the company. "

Sales of Kroger's private label portfolio, or "Our brands," grew 3.1% year-over-year. The retailer announced that it launched 203 new Our Brands articles during the quarter.

"Growth in retail sales and unit shares led to the highest market share in the history of Our Brands in the second quarter," said McMullen. "And these new items generated additional sales of more than $ 137 million in the second quarter, further strengthening our supermarket business," he added.

Gary Millerchip (left), chief financial officer, said during the call that the major categories of beverages, food and natural foods "outperformed the company" in the second quarter, which also allowed the sector pharmacy to experience strong growth and an average increase to a number number of prescriptions.

"Overall, we are pleased with the sales progress during the quarter and we will continue to work to build on this momentum in the second half of the year," Millerchip said.

In the end, Kroger reported second-quarter net income of $ 297 million, or 37 cents per diluted share, versus $ 508 million, or 62 cents per diluted share, of the same period of the year. previous. Excluding the impact of pension adjustments, changes in the market value of Ocado's securities and the sale of its convenience store operations, adjusted earnings were $ 357 million, or 44 cents per diluted share, for the quarter of 2019, compared to $ 336 million, or 41 cents. per diluted share, in the quarter of 2018.

Analysts expect an average adjusted 41-cent EPS, with estimates ranging from 31 cents to 46 cents, according to Refinitiv / Thomson Reuters.

For the first half of 2019, sales fell 0.5% from one year to the next to reach $ 65.42 billion. Same-store sales increased 1.8%, the same growth as in the first half of 2018. Net earnings were $ 1.07 billion, or $ 1.31 per diluted share, compared with 2 $ 53 billion, or $ 3.03 per diluted share, a year earlier. Adjusted earnings were $ 943 million, or $ 1.16 per diluted share, compared with $ 962 million or $ 1.15 per diluted share for the same period last year.

McMullen and Millerchip said Kroger was about to generate an additional $ 100 million operating profit for the 2019 fiscal year, fueled by alternative sources of profit, namely media and personal finance .

"We want to make clear to today's call that we are not reconfirming the forecast for additional operating profit of $ 400 million over three years," McMullen told analysts. .

In the future, Kroger is now forecasting a GAAP EPS for the 2019 fiscal year of $ 2.30 to $ 2.40, compared to its previous guidance of $ 2.38 to $ 2.48. The company reconfirmed its adjusted EPS guidance of $ 2.15 to $ 2.25.

According to consensus Wall Street forecasts, adjusted EPS for the full year would be $ 2.17, with projections ranging from $ 2 to $ 2.25, according to Refinitiv / Thomson Reuters.

McMullen said in his call to analysts that more details behind Kroger's advice would be shared at the Cincinnati-based company's annual investor day in November.

"The transformation is incredibly difficult, and that's what we do with Restock Kroger. As we reflect on this trip, we want to be transparent about what happened as planned and what did not happen as planned, "he said.

"During a three year plan in today 's retail environment, there are plenty of put and take options. That said, I want to reiterate that Kroger is committed to maintaining the FIFO operating earnings growth forecast in 2020 over 2019, "said McMullen. "The Restock Kroger transformation process is preparing the company for long-term growth and the benefits we've seen so far have helped Kroger transform our grocery company into a growing company. We have the right overall strategy and framework for this activity and look forward to telling you more about it in November. "

Kroger closed the second quarter of 2019 with 2,759 retail food stores, up from 2,769 a year ago. His banners include Kroger, Ralphs, Dillons, Smith, King Soopers, Fry's, QFC, City Market, Owen, Jay C, Pay Under, Baker, Gerbes, Harris Teeter, Pick Save, Copps, Metro Market, Mariano's, Fred Meyer, Food 4 Less and Foods Co, among others.