CINCINNATI – Financial guidance from publicly traded companies has been difficult to come by during the coronavirus (COVID-19) pandemic. Most executives cite marketplace uncertainty as the reason for the lack of transparency, but The Kroger Co. is an exception. Citing current consumer trends, the retailer raised its guidance for fiscal 2020.
“The COVID-19 pandemic has changed the outlook for food retail, and we continue to monitor, evaluate and adjust our plans to address the impact to our business,” said Gary Millerchip, chief financial officer, during a Sept. 11 conference call to discuss second-quarter results. “While there are clearly still many unknowns … we now have greater clarity in many areas of our business and the drivers of food to home consumption.”
Management said sales without fuel are expected to exceed 13% when compared to the previous year and adjusted earnings per share are expected to grow between 45% to 50%.
“In the second half of 2020, we expect identical sales, excluding fuel, to continue at elevated levels, although tapering from the level we’ve experienced so far this year,” Mr. Millerchip said. “Our guidance contemplates continued investments in the customer and ongoing COVID-19-related costs to protect the safety of our customers and associates, balanced with continued execution of cost-saving initiatives and growth in alternative profits.”
Net income for the quarter ended Aug. 15 surged to $819 million, equal to $1.04 per share on the common stock, and an increase compared to the same period of the previous year when the retailer earned $297 million, equal to 37¢.
Sales for the quarter were $30.5 billion, up from $28 billion the year prior.
“We continue to see a slow return to normal from the shutdown period, resulting in fewer customer visits but increased basket size,” said William Rodney McMullen, chairman and chief executive officer. “Customers across the country are still staying home and cooking at home that is now part of their new routine. This makes our leadership position in fresh an even more important sales driver for Kroger.”
Mr. Millerchip said digital sales grew 127% and contributed 4.4% of identical sales without fuel. The growth was seen in a variety of channels, including pickup and delivery.
“Even before the pandemic, our digital business had become a tailwind,” Mr. McMullen said. “The pandemic certainly has accelerated customer preference for seamless offerings. Our customers are increasingly turning to our e-commerce solutions for their grocery and household essential needs. Many of our customers are ordering groceries online for the first time as a result of COVID-19, and the majority of them tell us they plan to continue to do so in the future.”
Of more importance to Kroger is the digital business is becoming profitable.
“When we look at the overall impact of the incremental sales, the cost to fill the order and the media revenue, we see a profitability pass-through, if you like, in terms of the transaction from a digital perspective. It’s obviously at a much lower level than you would see in the store channel, but we are seeing that profitability flow through on an incremental basis.”
The shift to more at-home eating is also resonating with the retailer’s private brands.
“…We are seeing some customer segments trade up to the larger pack sizes, as well as more premium quality foods and natural and organic foods,” Mr. McMullen said. “Our larger-sized big pack platform is up well over 50%. Private Selection is up over 17% and Simple Truth is up over 20% in the second quarter. Our brands continue to tap into emerging trends and evolving customer needs, delivering new flavors and innovative new items like the new plant-based Emerge grinds and patties, which launched in late 2019.”
Kroger’s net income for the first six months of fiscal 2020 was $2 billion, equal to $2.58 per share, and an increase over the previous year when the company earned $1 billion, equal to $1.32 per share.
Sales for the first half of the fiscal year were $72 billion, up from the $65 billion in sales generated in fiscal 2019.