CINCINNATI — Kroger Co. posted second-quarter results that beat forecasts. Identical store sales (excluding fuel) declined 0.6% but increased 14.0% on a two-year stack basis. The two-year stack for digital sales grew 114%.
The company also said that its alternative profit business continued its strong growth, tracking toward the high end of annual expectations.
“Our strategic focus on leading with fresh and accelerating with digital continues to build momentum across our business,” Kroger chairman and chief executive officer Rodney McMullen said. “Kroger’s seamless ecosystem is working. This was evident during the quarter as we saw customers seamlessly shift between channels, and we continued to see strong digital engagement. Customers are eating more food at home because it is more affordable, convenient, and healthier than other options.
“Our associates continue to support our customers and our communities through the pandemic by delivering a full, fresh, and friendly experience every day. We are committed to our environmental, social, and governance strategy to advance positive outcomes for people and our planet and create more resilient global systems, driven by our Zero Hunger | Zero Waste social and environmental impact plan.
“We are leveraging technology, innovation, and our competitive moats to deliver against the initiatives outlined at our 2021 investor day, and we remain confident in our ability to deliver total shareholder returns of 8% to 11% over time.”
Total company sales were $31.7 billion in the second quarter, compared to $30.5 billion for the same period last year. Excluding fuel, sales decreased 0.4% compared to the same period last year.
Gross margin was 21.4% of sales for the second quarter. The FIFO gross margin rate, excluding fuel, decreased 60 basis points compared to the same period last year. This decrease primarily related to continued price investments, and higher shrink and supply chain costs, partially offset by sourcing benefits and growth in the alternative profit business.
The LIFO charge for the quarter was $47 million, compared to a LIFO charge of $23 million for the same period last year. This increase was primarily attributable to inflation in fresh categories.
The Operating, General & Administrative rate decreased 76 basis points, excluding fuel and adjustment items, which reflects decreased COVID-19 related costs and the execution of cost savings initiatives.
Kroger continues to generate strong free cash flow and remains committed to investing in the business to drive long-term sustainable net earnings growth, maintaining its current investment grade debt rating, and returning excess free cash flow to shareholders via share repurchase and a growing dividend over time.
Kroger’s net total debt to adjusted EBITDA ratio is 1.78, compared to 1.70 a year ago (Table 5). The company’s net total debt to adjusted EBITDA ratio target range is 2.30 to 2.50.
Earlier this quarter, Kroger increased the dividend by 17%, marking the 15th consecutive year of dividend increases. Additionally, in the quarter, Kroger repurchased $349 million shares and year-to-date, has repurchased $751 million shares. As of the end of the second quarter, $779 million remains on the board authorization announced on June 17, 2021.
“Kroger’s strong execution resulted in identical sales above our internal expectations for the second quarter, and we continued to remove costs from the business.” chief financial officer Gary Millerchip said. “Driven by the momentum in our results and sustained food at home trends, we are raising our full-year guidance. We now expect our two-year identical sales stack to be in the range of 12.6% to 13.1%. We expect our adjusted net earnings per diluted share to be in the range of $3.25 to $3.35.
“We are emerging stronger through the pandemic and are confident in our ability to deliver sustainable earnings growth and total shareholder return.”