Net and identical sales at The Kroger Co. climbed by double digits in the fiscal 2020 first quarter, driving earnings gains that topped Wall Street’s per-share estimate by 13 cents.
For the quarter ended May 23, sales totaled $41.55 billion, up 11.5% from $37.25 billion a year earlier, Kroger said Thursday. Identical sales excluding fuel surged 19% year over year. Digital sales also skyrocketed, up 92% from a year ago.
Operating profit jumped 47.6% to $1.33 billion from $901 million in the prior-year period. Kroger said adjusted FIFO operating profit came in at $1.45 billion, up 51.8% from $957 million in the fiscal 2019 quarter. The company noted that, during the quarter, it contributed an additional $236 million to multi-employer pension plans to stabilize associates’ future benefits.
The strong results show that the Cincinnati-based company’s Restock Kroger three-year strategic plan continues to bear fruit, according to Chairman and CEO Rodney McMullen.
“Under Restock Kroger, we have made significant investments over the last several years to establish a seamless digital ecosystem, strengthen ‘Our Brands’ and our personalization capabilities, and to enhance product freshness and quality. These investments helped Kroger deliver improved results in 2019, a strong start to the quarter, and very much came to the forefront as we provided our customers with the fresh food and essentials they have needed during the pandemic,” McMullen said in a statement.
“We are proud of our heroic and dedicated associates who are serving our customers when they need us most,” he added. “As America enters the next phase of the pandemic, we know that our associates will continue to rise to meet the challenge, delivering ‘Fresh for Everyone’ and helping our customers, communities and America emerge even stronger.”
At the bottom line, Kroger reported net income of $1.21 billion, or $1.52 per diluted share, compared with $772 million, or 95 cents per diluted share, a year earlier. Adjusted net earnings, which exclude a $312 million mark-to-market gain (40 cents per diluted share) on Ocado securities and other items, came in at $972 million, or $1.22 per diluted share, versus $586 million, or 72 cents per diluted share, in the year-ago period.
Analysts, on average, projected adjusted earnings per share (EPS) of $1.09, with estimates ranging from a low of 74 cents to a high of $1.60, according to Refinitiv/Thomson Reuters.
Kroger said that, so far, the company has invested more than $830 million to reward employees and protect associates, customers and communities during the coronavirus pandemic. Besides operational changes and safety measures for shoppers and employees, the investments include the hiring of over 100,000 new associates; special premium pay and bonuses in March, April, May and June, plus comprehensive benefits including health coverage; free COVID-19 testing and emergency leave for associates; waived online grocery pickup fees and prescription delivery fees; and acceptance of SNAP/EBT benefits for low-contact pickup service nationwide, among other initiatives.
Kroger also has offered walk-up testing sites to support people at high risk for COVID-19. The company said it has tested 82,199 patients in 15 states and is one of only five U.S. retailers to develop, staff and expand a free coronavirus testing model in partnership with the federal and state governments.
Looking ahead, Kroger said it’s not reaffirming previous financial guidance or providing an updated outlook. Chief Financial Officer Gary Millerchip noted “many unknown factors related to the long-term impact of COVID-19” could impact results in 2020, including further investments for customers and employees; uncertainty around consumer behavior, restrictions and “what will be the new normal,” and a potential long-term shift in customers eating more food at home.
“The COVID-19 pandemic has dramatically changed the outlook for food retail in 2020, and we continue to monitor, evaluate and adjust our plans to address the impact to our business,” Millerchip stated. “In recognition of these factors, it is difficult to predict specific outcomes and, as such, Kroger is not reaffirming or providing new 2020 guidance. While we expect to exceed the outlook shared in our April 1 business update for identical sales without fuel, adjusted FIFO operating profit, adjusted EPS and adjusted free cash flow, the company is not able to forecast the extent of such upside.”
For fiscal 2020, analysts’ consensus estimate is for adjusted EPS of $2.68, with projections running from a low of $2.35 to a high of $3.38, according to Refinitiv/Thomson Reuters.
“Kroger’s financial model has proven to be resilient throughout the economic cycle,” Millerchip added. “We remain confident in our business model as well as our ability to generate strong free cash flow and achieve sustainable and attractive total shareholder returns.”
Kroger said it’s also responding to recent instances of racial injustice around the country. For example, the company is hosting virtual listening sessions to hear directly from African-American associates and find out to better support them, as well as sharing an Allyship Guide developed by its African-American Associate Resource Group and establishing a $5 million fund through The Kroger Co. Foundation to support the advancement of diversity, equity and inclusion in communities.
“The COVID-19 pandemic and the most recent instances of racial injustice have changed our country in unmistakable ways, not the least of which is the devastating loss of life and livelihood that has affected so many Americans,” McMullen commented. “Kroger remains guided by our purpose and our values. I am proud of our associates who stepped up when we were called to be there for our customers, communities and each other. Our company is proud to stand with our Black associates, customers and communities against racism and for a more just and equitable society.”
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