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Sales inch up at Kroger in second quarter

CEO Rodney McMullen cites “solid progress” with Restock Kroger

Russell Redman

September 13, 2018

3 Min Read
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The Kroger Co. reported lackluster sales growth for its fiscal 2018 second quarter and, despite topping Wall Street’s earnings forecast, saw its share price drop nearly 10% shortly after the market opened.

For the quarter ended Aug. 18, sales totaled $27.87 billion, up 1% from $27.6 billion a year earlier, Kroger said Thursday. Revenue growth was 1.8% excluding fuel sales, the divestiture of the convenience store business and the merger with Home Chef. The Cincinnati-based supermarket giant said digital sales jumped 50% year over year.

Identical-store sales (excluding fuel) edged up 1.6% in the second quarter, compared with 0.9% growth in the 2017 quarter.

At the bottom line, second-quarter net income came in at $508 million, or 62 cents per diluted share, compared with $353 million, or 39 cents per diluted share, a year ago. Kroger said the gain stems mainly from the increased market value of its investment in UK online grocer Ocado, in which it owns a 6% stake.

Adjusted net earnings were $336 million, or 41 cents per diluted share. Analysts, on average, had projected adjusted earnings per share of 37 cents, with estimates ranging from a low of 32 cents to a high of 45 cents, according to Thomson Reuters.

Rodney_McMullen_Kroger_headshot_1_0.png“We are only two quarters into our three-year Restock Kroger plan, and we are making solid progress. Kroger customers have more ways than ever to engage with us seamlessly through our recently launched Kroger Ship, expanded availability of Instacart, successful ClickList offering and selling Simple Truth in China through Alibaba's Tmall,” Kroger Chairman and CEO Rodney McMullen (left) said in a statement.

Related:Kroger Ship expands to Atlanta

“We feel good about our net earnings per diluted share and identical-sales results in the second quarter,” he added. “We expect our investments in space optimization during the first half of 2018 to become a tailwind late in the third quarter.”

For the fiscal 2018 first half, Kroger tallied sales of $65.4 billion, up 2.4% from $63.88 billion in the prior-year period. Identical-store sales (excluding fuel) rose 1.8%, compared with an 0.4% uptick a year earlier.

Net earnings for the first half were $2.53 billion, or $3.03 per diluted share, versus $656 million, or 71 cents per diluted share, a year ago.

Kroger noted that 2018 first-half adjusted EPS (diluted) was slightly ahead of expectations because of early strides made with Restock Kroger, its strategic plan to redefine the customer experience. The company said the progress included process changes that led to sustainable cost controls and higher-margin alternative revenue streams.

Related:Kroger partners with China e-commerce giant Alibaba

Looking ahead, Kroger raised its GAAP net earnings guidance for fiscal 2018 to between $3.88 and $4.03 per diluted share from its previous range of $3.64 to $3.79. The company said the change reflects the unrealized gain in Ocado shares, recorded in the second quarter.

Kroger confirmed its adjusted EPS (diluted) forecast of $2.00 to $2.15 for the full year. Wall Street’s consensus estimate is for adjusted EPS of $2.12, with projections running from a low of $2.05 to a high of $2.17, according to Thomson Reuters.

Meanwhile, Kroger projects identical sales (excluding fuel) to grow 2% to 2.5% in 2018. Capital expenditures — excluding mergers, acquisitions and purchases of leased facilities — are pegged at about $3 billion for the year.

“We are on track to generate the free cash flow and incremental FIFO operating profit that we committed to in Restock Kroger for 2018-2020, and to deliver on our long-term vision to serve America through food inspiration and uplift,” McMullen stated.

As of the second quarter’s close, Kroger operated 2,769 stores in 35 states under more than 20 banners, including Kroger, Ralphs, Dillons, Smith’s, King Soopers, Fry’s, QFC, City Market, Owen’s, Jay C, Pay Less, Baker’s, Gerbes, Harris Teeter, Pick ‘n Save, Copps, Metro Market, Mariano’s, Fred Meyer, Food 4 Less and Foods Co.

About the Author

Russell Redman

Senior Editor
Supermarket News

Russell Redman has served as senior editor at Supermarket News since April 2018, his second tour with the publication. In his current role, he handles daily news coverage for the SN website and contributes news and features for the print magazine, as well as participates in special projects, podcasts and webinars and attends industry events. Russ joined SN from Racher Press Inc.’s Chain Drug Review and Mass Market Retailers magazines, where he served as desk/online editor for more than nine years, covering the food/drug/mass retail sector. 

Russell Redman’s more than 30 years of experience in journalism span a range of editorial manager, editor, reporter/writer and digital roles at a variety of publications and websites covering a breadth of industries, including retailing, pharmacy/health care, IT, digital home, financial technology, financial services, real estate/commercial property, pro audio/video and film. He started his career in 1989 as a local news reporter and editor, covering community news and politics in Long Island, N.Y. His background also includes an earlier stint at Supermarket News as center store editor and then financial editor in the mid-1990s. Russ holds a B.A. in journalism (minor in political science) from Hofstra University, where he also earned a certificate in digital/social media marketing in November 2016.

Russell Redman’s experience:

Supermarket News - Informa
Senior Editor 
April 2018 - present

Chain Drug Review/Mass Market Retailers - Racher Press
Desk/Online Editor 
Sept. 2008 - March 2018

CRN magazine - CMP Media
Managing Editor
May 2000 - June 2007

Bank Systems & Technology - Miller Freeman
Executive Editor/Managing Editor
Dec. 1996 - May 2000

Supermarket News - Fairchild Publications
Financial Editor/Associate Editor
April 1995 - Dec. 1996 

Shopping Centers Today Magazine - ICSC 
Desk Editor/Assistant Editor
Dec. 1992 - April 1995

Testa Communications
Assistant Editor/Contributing Editor (Music & Sound Retailer, Post, Producer, Sound & Communications and DJ Times magazines)
Jan. 1991 - Dec. 1992 

American Banker/Bond Buyer
Copy Editor
Oct. 1990 - Jan. 1991 

This Week newspaper - Chanry Communications
Reporter/Editor
May 1989 - July 1990

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