With Americans stocking up to stay home during the novel coronavirus (COVID-19) pandemic, The Kroger Co. reported a 30% surge in identical-store sales for March.
Kroger announced the sales jump Wednesday as part of a business update on the impact of COVID-19. Also, Tuesday evening, the Cincinnati-based supermarket giant unveiled a “hero bonus” for all hourly frontline workers plus extended benefits and support amid the health crisis.
“We are seeing strong sales and are at the same time investing in our business to support our customers and associates through the current uncertainty,” Chief Financial Officer Gary Millerchip said in a statement.
Kroger said customer behavior began changing in the last few days of February, as shoppers stepped up purchases of sanitizer, cleaning products, water, paper goods, boxed meals and health-related products in preparation for hunkering down at home. The company said it then saw “significantly greater lift” in sales at physical retail stores and through digital channels in March, with identical supermarket sales (excluding fuel) trending at about 30% year-over-year growth.
“This was driven by dramatically heightened demand in the middle of the month as customers were stockpiling, which then tapered but remained higher than normal in the final week, as customer behavior transitioned to the next phase, where they are adjusting to new restrictions on work and travel,” the retailer explained. “The demand has been broad-based across grocery and fresh departments. It is still too soon to understand what the impact will be in future periods.”
In light of recent trends, Kroger said it expects first-quarter identical sales excluding fuel and adjusted earnings per share to be “significantly better” than the annual growth rate provided in guidance for full-year 2020.
The company pointed out that, based on “early observations,” customers have exhibited three phases of shopping behavior during the coronavirus outbreak. An initial surge in demand characterized by stockpiling that is then followed by a period when demand tails off but stays higher than usual as shoppers adjust to new dining and travel restrictions, working at home and taking care of children at home from school.
“Beyond this phase, it is too early to speculate how customer behavior will change and what will emerge as the ‘new normal’ in food consumption at home in the third phase as a result of COVID-19,” Kroger said.
Coronavirus-triggered consumer demand has been "broad-based across grocery and fresh departments," Kroger reported.
The retailer noted that its leadership is closely monitoring the pandemic’s impact on food retail in affected global markets.
“Kroger’s most urgent priority is to provide a safe environment for associates and customers, with open stores, comprehensive digital solutions and an efficiently operating supply chain, so that our communities have access to fresh, affordable food and essentials,” said Chairman and CEO Rodney McMullen. “We are so proud of our dedicated associates who are on the front lines serving our customers when they need us most. A huge thank you to all of our associates, whose efforts are nothing short of heroic.”
Late Tuesday, Kroger announced a “hero bonus” of $2 per hour for all frontline grocery, supply chain, manufacturing, pharmacy and call center associates for hours worked between March 29 and April 18. The company said the premium will be disbursed weekly to ensure workers have access to additional cash and comes in addition to a previously announced a one-time bonus to frontline staff that pays out on April 3.
“Recently, we announced an appreciation bonus for our hourly frontline associates. This gesture was to thank our associates for everything they have done during the past few weeks,” according to Tim Massa, senior vice president and chief people officer. “However, we recognize that this crisis is far from over, and after reflecting on associate feedback and working together with our union partners, we want to further acknowledge our terrific team for their hard work to date as well as the work yet to come.”
In addition, Kroger said it’s taking further actions to support employees during the coronavirus outbreak. Associates affected by COVID-19 are being offered emergency paid leave to help them recover, whether they’re experiencing symptoms and self-isolating, diagnosed or placed in quarantine. Workers, too, will get access to mental health services and other benefits to help them cope with mental and physical stress during this time, the company said.
Starting next week, Kroger will add a new benefit called ExpressPay, which will enable most hourly associates to access some of their pay faster. The retailer said it’s also offering an associate hotline to answer benefit questions quickly and making $5 million available for those facing hardship due to COVID-19, including high risk for contracting the virus and a lack of access to child care.
Kroger is bringing in more hands to help as well. The company said it has on-boarded more than 30,600 new workers in the last two weeks under an expanded hiring program, including workers from the hard-hit business sectors such as restaurants, hotels and foodservice distributors.
The increased efforts to support and safeguard employees drew plaudits from the United Food and Commercial Workers (UFCW), which said it worked with Kroger to ensure grocery workers can keep providing customers with food and supplies during the coronavirus emergency.
“Following talks between UFCW, America’s largest food and retail union, and Kroger, UFCW is proud to join the company today in announcing a $2 per hour wage increase, additional emergency paid leave, new workplace safety measures, and other critical worker protections,” UFCW International President Marc Perrone said in a statement on Wednesday. “Working together, UFCW and Kroger have listened to workers and customers across the country to identify the most urgent needs and determine the best way to support these hard-working men and women on the frontlines who are serving our communities every day throughout this national crisis.”
Measures already under way at Kroger to protect workers and customers include enhanced daily sanitation practices (including cleaning of commonly used areas such as cashier stations, self-checkouts, credit card terminals, foodservice counters and shelves); allowing associates to wear masks and gloves; stepped-up efforts to procure more gloves and masks; and floor decals in stores to promote physical distancing at checkout and other counters.
The company also has modified store hours to give employees more time to rest, clean and replenish inventory; expanded online grocery pickup and delivery services; and contactless payment solutions like Kroger Pay.
“Today’s increase in pay and benefits is a good first step in our ongoing conversations with Kroger to keep customers and workers safe in stores during this crisis,” UFCW’s Perrone added. “We look forward to continuing to work with Kroger to strengthen support and protections for these essential workers on the frontlines of this outbreak as they continue to serve families across the country.”
Kroger is stepping up cleaning of commonly used areas such as cashier stations, self-checkouts, credit card terminals, foodservice counters and aisle shelves.
Looking ahead, Kroger said it expects volatility in sales during the rest of 2020 as consumers adjust to the impact of coronavirus. Management, as a result, has decided to uphold its current guidance for the year, a move the company said its leadership believes “is prudent at this time.”
The company’s reaffirmed outlook includes adjusted EPS of $2.30 to $2.40 and identical-store sales growth of more than 2.25%. Incremental alternative profit is pegged at $125 million to $150 million, and capital expenditures are projected at $3.2 billion to $3.4 billion.
Items expected to impact full-year results, Kroger said, include continued investments to help customers and associates during the pandemic; delays of certain cost-saving initiatives to focus resources where they are needed most in the short term to address COVID-19; uncertainty surrounding the virus’ longer-term impact, such as on travel and other restrictions, food and grocery sales, fuel and alternative profit streams; and a possible long-term shift in customer behavior toward eating more food at home.
“Over the past several quarters, we have talked about our successful cost savings initiatives to create future value, and we have plans in place to resume them quickly, when the timing is right,” Millerchip stated.
Kroger added that it recently borrowed $1 billion under its revolving credit facility to aid financial flexibility in response to the coronavirus pandemic, as well as paused share repurchases during the fiscal first quarter.
“Due to the extraordinary top-line benefit Kroger is seeing in its business and expected flow-through to the bottom line, the company now expects first-quarter 2020 adjusted EPS to be above the previous guided fiscal 2020 range of 4.5% to 9.0% (or 7.0% to 11.5% TSR),” Jefferies analyst Christopher Mandeville wrote in a research note released Wednesday.
Kroger earlier had projected less than 5% growth in adjusted EPS for the quarter, Mandeville noted.
“Although Kroger admitted sales volatility will likely remain, and there is uncertainty surrounding expected cost savings from existing initiatives, management elected to reiterate fiscal 2020 guidance,” he said. “Investors should keep in mind that Kroger, like many club/grocers, has a considerable fuel retail presence. While gallon consumption is likely to be materially impaired near-term, the fuel margin capture has ballooned well over 400% in the most recent week. So we expect fuel ops to be up considerably in first-quarter 2020 and at least the start of second-quarter 2020.”
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