Kroger

  • Kroger, the United States' largest supermarket by revenue, and the second-largest   general retailer, beat earnings and revenue forecasts and raised annual   profit guidance. Total company sales were $41.3 billion in the first quarter,   compared to $41.5 billion for the same period last year. Excluding fuel,   sales decreased by a better-than-expected 4.0% compared to the same period   last year when shoppers were pandemic stockpiling. Gross margins were 65   basis points lower y-o-y to 22.6%.

  • Foot traffic at Kroger returned to 2019 levels as   of May as customers revert to pre-pandemic behavior by shopping more   frequently instead of consolidating trips. The company expects at-home food   consumption to soften as reopenings gather pace. Shoppers are, however, still   buying more higher-margin products like fresh produce and meat, as well   continuing to trade up to premium products. The company is unsure though of   how much of that spending will stick around once government stimulus ends and   savings are used up.

  • Consumers continued to buy more online too, with first-quarter digital sales up 16% even after efforts by rivals like Walmart and Amazon to capture market share in the grocery space. Kroger believes its quick pickup and delivery services will encourage Americans to order groceries online even after they begin to dine out again. It also expects to sustain the online sales growth seen since 2019 thanks to a focus on private labels, and the use of robots to stock and dispatch goods. Online sales have also been made more profitable by selling ad space to vendors.

  • Kroger,   the United States' largest supermarket by revenue, and the second-largest   general retailer, beat earnings and revenue forecasts and raised annual   profit guidance. Total company sales were $41.3 billion in the first quarter,   compared to $41.5 billion for the same period last year. Excluding fuel,   sales decreased by a better-than-expected 4.0% compared to the same period   last year when shoppers were pandemic stockpiling. Gross margins were 65   basis points lower y-o-y to 22.6%.

  • Foot traffic at Kroger returned to 2019 levels as   of May as customers revert to pre-pandemic behavior by shopping more   frequently instead of consolidating trips. The company expects at-home food   consumption to soften as reopenings gather pace. Shoppers are, however, still   buying more higher-margin products like fresh produce and meat, as well   continuing to trade up to premium products. The company is unsure though of   how much of that spending will stick around once government stimulus ends and   savings are used up.

  • Consumers continued to buy more online too, with first-quarter digital sales up 16% even after efforts by rivals like Walmart and Amazon to capture market share in the grocery space. Kroger believes its quick pickup and delivery services will encourage Americans to order groceries online even after they begin to dine out again. It also expects to sustain the online sales growth seen since 2019 thanks to a focus on private labels, and the use of robots to stock and dispatch goods. Online sales have also been made more profitable by selling ad space to vendors.

  • Operating   profit fell 39% to $805 million in the fiscal first quarter. A strong   performance in its alternative profit business (the media, advertising and   personal finance divisions) helped Kroger earn $1.19 per share, 2.5% lower   than the year-ago period.

  • Kroger Chief executive Rodney McMullen said   inflation has been at the low end of its expectations of 1% to 2%. He would   prefer it in the "sweet spot" of 3% to 4% - a level at which   customers don’t overly react to price increases, and at which the company itself   is able to take advantage of its fixed costs. The net total debt to adjusted   EBITDA ratio for the period improved to 1.79x, compared to 1.81x a year ago.   Kroger has a target range of between 2.30x and 2.50x which leaves it with   options on its balance sheet.

  • The company issued upbeat guidance that surprised   the market. It is now forecasting 2021 adjusted profit per share between   $2.95 and $3.10, compared with its prior range of $2.75 to $2.95. It also   expects 2021 adjusted same-store sales to fall by 4%, which is 100 basis   points better off than previous projections.

  • Kroger continues to generate strong free cash flows, and has been a beneficiary of the pandemic, with free cash flows having reached a healthy $4 billion in 2020. It also remains committed to returning excess cash to shareholders, unveiling a $1 billion share buyback program. This is a very innovative and high quality business trading on a forward PE of around 13x, which is not an onerous valuation relative to peers. It does however find itself in a very competitive industry. Whilst we like the company, we instead own Amazon.com in the retail space in segregated portfolios and the Cratos BCI Worldwide Flexible Fund.

Kroger