CINCINNATI — Kroger Co.’s first-quarter same-store sales and net earnings beat analysts’ projections, and the company reaffirmed its guidance for the year. Identical store sales, excluding fuel, increased by 3.5% for the quarter, topping analysts’ average forecast of a 3.27% gain. Kroger said identical store sales would have increased by 5.0% had it not been for the reduction in pharmacy sales that resulted from the termination of its agreement with Express Scripts.
The company also reported that it grew digital sales by 15% and increased customer household penetration and store trips.
“Kroger achieved solid first quarter results guided by the execution of our Leading with Fresh and Accelerating with Digital strategy,” Kroger chairman and CEO Rodney McMullen said in a statement. “As more customers are feeling the effects of inflation and economic uncertainty, we are growing customer households by providing fresher products at affordable prices with personalized rewards.”
McMullen also cited the role of store associates in delivering a “full, fresh and friendly” shopping experience for customers in its supermarkets.
“Looking forward, Kroger’s go-to-market strategy positions us well in a wide range of economic environments to continue to deliver for our customers, invest in our associates and achieve sustainable and attractive returns for shareholders.”
Total company sales were $45.2 billion in the first quarter, compared to $44.6 billion for the same period last year. Excluding fuel, sales increased 3.5% compared to the same period last year.
The gross margin was 22.3% of sales for the first quarter. The FIFO gross margin rate, excluding fuel, increased 21 basis points compared to the same period last year. This increase in rate was achieved while also investing in price to maintain a competitive price position and deliver greater value for our customers. The improvement in the FIFO gross margin rate, excluding fuel, was primarily attributable to increased store brand sales, sourcing benefits, lower supply chain costs and the positive effects of Kroger’s terminated agreement with Express Scripts, the company said. Those improvements were partially offset by higher shrink and increased promotional price investments.
The LIFO charge for the quarter was $99 million, compared to a LIFO charge of $93 million for the same period last year.
Excluding special items, Kroger, reported earnings of $1.51 per share, beating estimates of $1.46 per share.
Looking ahead, Kroger reaffirmed its guidance for the full year, which calls for:
- An identical sales (excluding fuel) increase of 1% to 2%, with underlying growth of 2.5% to 3.5% (after adjusting for the effect of the termination of the agreement with Express Scripts).
- Adjusted net earnings per diluted share of $4.45 to $4.60, including an estimated benefit from the 53rd week of approximately $0.15.
- Adjusted FIFO operating profit of $5 billion to $5.2 billion
- An effective tax rate of 23%.
- Capital expenditures of $3.4 billion to $3.6 billion.
“Kroger’s first quarter results demonstrate the durability of our business model in a more challenged operating environment,” chief financial officer Gary Millerchip said. “The investments we have made over recent years to deliver for our customers and strengthen our value creation flywheel give us the confidence to reaffirm our full-year identical sales without fuel and adjusted net earnings per diluted share guidance. We delivered strong Adjusted Free Cash Flow in the quarter and as a result of improvements in working capital, we are raising our guidance to a range of $2.5 to $2.7 billion for the fiscal year 2023. Kroger remains committed to delivering attractive and sustainable total shareholder returns for our investors.”
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