CINCINNATI — Kroger on Thursday reported first-quarter results that topped analysts’ expectations. The retailer also raised its guidance for the year and announced a new $1 billion share repurchase plan.
“Kroger is even better positioned to connect with our customers than we were prior to the pandemic as a result of our relentless focus on leading with fresh and accelerating with digital,” chairman and CEO Rodney McMullen said. “I am incredibly proud of our amazing associates who continue to be there for our customers, communities, and each other when they need us most and who strive to deliver a full, fresh, and friendly experience to every customer, every time.
“Kroger’s strong execution delivered identical sales results in the first quarter that exceeded our original expectations. Customers are responding to the investments we have made in digital, as evidenced by our triple-digit growth in digital sales since the beginning of 2019. We were disciplined in driving costs out of the business and we achieved record growth in Kroger’s alternative profit business, demonstrating the power and attractiveness of our long-term model.
“We are raising our guidance based on the strength of our results and we remain confident in our ability to deliver consistently attractive total shareholder return.”
Kroger said that that its identical sales without fuel decreased 4.1% in the first quarter, but increased 14.9% on a two-year stack basis. Digital sales grew 16%; two-year stack grew 108%.
Total company sales were $41.3 billion in the first quarter, down from $41.5 billion for the same period last year. Excluding fuel, sales decreased 4.0% compared to the same period last year.
Kroger’s gross margin was 22.6% of sales for the first quarter. The FIFO gross margin rate, excluding fuel, decreased by 65 basis points compared to the same period last year. This decrease was primarily related to sales deleverage, higher shrink, continued price investments, and charges related to COVID-19. The decrease was offset by sourcing benefits and growth in alternative profits. Kroger said alternative profit business growth fueled by its Retail Media and Kroger Personal Finance units.
Kroger also provided updates on its “leading with fresh, accelerating with digital” strategy. During the first quarter, developments in its “fresh” business included:
- The launch of 253 new Our Brands items during the quarter, including seasonal fresh produce and products to elevate summer cooking
- The expansion of Kroger’s partnership with 80 Acres Farms to 316 stores, reaching more shoppers in the Midwest – both in store and online
- The announcement of the Go Fresh & Local Supplier Accelerator, providing Kroger with the opportunity to discover more local and regional suppliers to partner with to advance freshness, quality, and a Fresh for Everyone commitment.
- The launch of a digital farmers market pilot, creating an e-commerce marketplace that connects local farmers and businesses to customers seeking fresh and delicious products.
On the digital front, highlights of the first quarter included:
- The opening of the first two Kroger Delivery facilities powered by Ocado. Those facilities are located in Monroe, Ohio, and in Groveland, Fla..
- Expansion to 2,233 Pickup locations and 2,488 Delivery locations, covering 98% of Kroger households.
- The 15% increase in Pickup capacity, which focused on adding more high-demand time slots.
- Being named “Retail Innovator of the Year” during the Path to Purchase Institute’s first Industry Innovator Awards.
- The announcement of a Kroger Drone Delivery pilot with partner Drone Express, which reinforced the retailer’s commitment to offering flexibility and immediacy to customers.
“Based on the momentum within our business, we are raising our full year guidance,” CFO Gary Millerchip said. “We now expect our two-year identical sales stack to be in the range of 10.1% to 11.6%. We expect our adjusted net earnings per diluted share to be in the range of $2.95 to $3.10.
“Our new, $1 billion share buyback program reinforces our Board of Directors and management’s confidence in our ability to generate strong free cash flow and is consistent with our commitment to deliver strong and sustainable total shareholder returns of 8-11%.”