Kroger
Kroger is one of the United States of America’s largest supermarket chains. It began in Cincinnati in 1883 and owns nearly 2,800 stores across 35 states and Washington DC under its own name and other brands, such as above.
The company reported first quarter revenue which rose 11.5% to $41.55 billion from $37.25 billion a year ago. More online shopping and curbside pickup saw digital sales grow by 92% in the fiscal first quarter compared with a 22% increase in the previous quarter. Digital sales accounted for about 6.5% to 7% of Kroger’s total sales for the period. Overall same-store sales, excluding the impact of fuel prices, rose 19%. The gross margin improved by 44 basis points to 24.3% of sales for the first quarter.
Pandemic demand for fresh produce, soups and meats increased in March and April, and wide-ranging stockpiling forced Kroger to put buying-limits on cold, flu and sanitary products, as well as beef and fresh pork at certain stores. Kroger had to increase its workforce to facilitate the demand spike, which led to an increase in labor costs. The company hired over 100,000 workers to help keep shelves stocked and stores sanitized.
Operating profits soared 47.6% to $1.33 billion from $901 million in the prior-year period. Net income rose 67.6% to $1.21 billion, or $1.52 per share, from $722 million, or 95 cents per share, last year. Adjusted earnings came in at $1.22 per share.
Kroger's net total debt to adjusted EBITDA ratio improved to 1.81, compared to 2.54 a year ago, and well within its target of 2.3 times. Kroger held temporary cash investments of approximately $2.3 billion as of the end of the quarter, reflecting improved operating performance and significant improvement in working capital. Kroger spent more than $830 million on employee pay and health-related services, such as free Covid-19 testing, in the quarter. This includes bonuses to employees handling the additional demand.
Kroger CFO Gary Millerchip says the pickup and delivery of online orders have attracted first-time customers and inspired repeat visits. He says same-store sales growth in the fiscal second quarter so far have been in the mid-teens, with digital sales up triple digits in the first three weeks of the second quarter.
To keep up with changing trends, Krogers’ first high-tech facility, after acquiring British robotics company Ocado, will be opened in 2021 in a suburb of Cincinnati. The goal of such projects is to speed up and lower the cost of fulfilling online grocery orders. Kroger has a higher rate of substitutions and unfulfilled online items compared to rivals Walmart, Amazon and Target. This affects the customer experience negatively and lowers total sales. Additionally, when a customer switches to online grocery shopping, Millerchip says it typically takes three to four years before that customer’s profitability is the same as if they had shopped in the store.
