Kroger highlights Our Brands growth in Q1

Kroger's first-quarter earnings show that the company's fresh and digital value proposition is positioning the company for long-term sustainable growth.

The company raised its full-year forecast on June 17, citing continued post-pandemic sales momentum.

"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," said CEO Rodney McMullen. "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."

The company now expects a two-year identical sales stack in the range of 10.1% to 11.6%; in March, Kroger had forecast a stack of between 9.1% and 11.1%. Kroger is also forecasting adjusted net earnings per diluted share in the range of $2.95 to $3.10; in March, it was forecasting an adjusted profit of $2.75 to $2.95 a share.

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In March Kroger had also forecast that its first-quarter comps would turn negative, and they did, as the company cycles against last year's pandemic boost, which left consumers eating many more meals at home. That trend is expected to continue, according to a new report from FMI. The group's new U.S. Grocery Shopper Trends report found that 49% of consumers are cooking or preparing their own meals more now than before the pandemic and 42% say that they “like or love” to shop for groceries. Even as masks come off and the country opens up, consumers are likely to continue to make more meals at home, which is expected to continue to boost sales at Kroger.

For the period ended May 22, identical sales without fuel decreased 4.1% at Kroger, but the two-year stack increased 14.9%. Digital sales grew 16%, but the two-year stack grew 108%. And EPS was 18 cents; adjusted EPS was $1.19. Kroger also reported an operating profit of $805 million, influenced by record alternative business growth fueled by its Retail Media and Kroger Personal Finance divisions. 

"Kroger's strong execution delivered identical sales results in the first quarter that exceeded our original expectations," McMullen added. "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."

Total company sales were $41.3 billion in the first quarter, compared to $41.5 billion for the same period last year. Excluding fuel, sales decreased 4% compared to the same period last year.

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The gross margin was 22.6% of sales for the first quarter. The FIFO gross margin rate, excluding fuel, decreased 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, partially offset by sourcing benefits and growth in Alternative Profits.

Kroger said it 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 announced that the company's Board of Directors has approved a $1 billion share repurchase program; the previous authorization expired last week.

During the first quarter, Kroger launched grocery delivery in Florida. The company also:

• Launched 253 new items under its Our Brands, including seasonal fresh produce and products to elevate summer cooking.
• Announced expansion of partnership with 80 Acres Farms to 316 stores, reaching more shoppers in the Midwest – both in store and online.
• Announced 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 Fresh for Everyone commitment.
• Launched a digital farmers market pilot, creating an e-commerce marketplace that connects local farmers and businesses to customers seeking fresh and delicious products.
• Expanded to 2,233 Pickup locations and 2,488 Delivery locations, covering 98% of Kroger households.
• Increased capacity for Pickup by 15% with a focus on adding high-demand time slots.
• Was named "Retail Innovator of the Year" during the Path to Purchase Institute's first Industry Innovator Awards.
• Announced Kroger Drone Delivery pilot with partner Drone Express, reinforcing the importance of flexibility and immediacy to customers.

Kroger also said it's on track to increase its average hourly employee wage to $16 an hour and with comprehensive benefits, will be approaching $21 by the end of 2021.

This story originally appeared on Progressive Grocer.