Kroger grocery store
Kroger's net earnings in the second quarter slipped 12% from the prior-year period.

CINCINNATI — The fiscal year isn’t shaping up the way executives of the Kroger Co. expected. Net earnings attributable to the Cincinnati-based retailer in the second quarter ended Aug. 13 slipped to $383 million, equal to 40c per share on the common stock, down 12% from $433 million, or 44c per share, in the prior-year period. Sales totaled $26,565 million, up 4% from $25,539 million.

Deflation, particularly in milk and eggs, is expected to continue to challenge Kroger for the remainder of the year and possibly into next year, prompting management to lower its net earnings guidance range and identical supermarket sales target.

Rodney McMullen, Kroger
Rodney McMullen, chairman and c.e.o. of Kroger

“While we’ve revised our identical supermarket sales growth and net earnings per diluted share guidance for the year, our growth objectives are on a three- to five-year rolling cycle, and we remain confident in those targets,” said Rodney McMullen, chairman and chief executive officer, during a Sept. 9 earnings call with financial analysts. “We believe that it is easier to steer a big ship when the waters are smooth. But when the water gets rough, the right people and the right strategy make all the difference. These are some of the same reasons why you should continue to believe in Kroger. We are focused on the long term, we have the financial flexibility to execute our strategy and we have the right people and the right strategy to weather any storm.”

Shares of the Kroger Co. have slid nearly 25% so far this year, and while the supermarket chain continues to report positive year-over-year same-store sales growth, that growth has slowed in recent quarters. In the second quarter, identical supermarket sales, without fuel, grew 1.7%.

Kroger milk and eggs
Deflation, particularly in milk and eggs, is expected to continue to challenge Kroger.

“While we expect continued deflation and tough year-over-year comparisons for the remainder of the year, and even into early next year, as we know from past experience, the environment won’t be deflationary forever,” Mr. McMullen said. “Kroger’s long-term focus is one of the reasons why our business continues to generate healthy free cash flow, which allow us to invest for the future and maintain financial flexibility to create shareholder value.”

Net earnings attributable to the Kroger Co. in the first six months of the fiscal year were $1,079 million, or $1.13 per share, up from $1,052 million, or $1.08 per share. Sales were $61,169 million, up from $58,590 million.