Net sales

Kroger’s net sales jump more than 9% in the second quarter

The Kroger Co. picked up momentum in its fiscal 2022 second quarter with strong net same sales growth and adjusted earnings per share that beat Wall Street’s high-end estimate.

Also on Friday, Cincinnati-based Kroger unveiled a new own-brand line called Smart Way, aimed at budget-conscious shoppers struggling with still-high grocery prices.

For the quarter ended Aug. 13, sales were $34.64 billion, up 9.3% from $31.68 billion a year earlier, Kroger reported. Excluding gasoline, whose prices have been high but relaxed in recent months, sales rose 5.2% year-over-year. This compared to a net sales gain of 3.9% (and a decline of 0.4% excluding fuel) in the fiscal 2021 quarter.

Aimed at value-conscious customers, the new Smart Way brand includes food and non-food items, and 150 items are now in store. (Photo courtesy of Kroger)

Non-fuel identical sales climbed 5.8% in the second quarter of 2022 compared to a year ago, when Kroger recorded a 0.6% decline.

In the first quarter of 2022, Kroger posted year-over-year gains of 8% in net sales (3.8% excluding fuel) and 4.1% in identical sales excluding fuel. The company’s sales in the first half of 2022 were $79.24 billion, up 8.6% from $72.98 billion in the prior year period.

“Kroger delivered strong second quarter results, powered by our ‘Leading with Fresh and Accelerating with Digital’ strategy,” Kroger Chairman and CEO Rodney McMullen said in a statement.

“Our consistent performance underscores the resilience and flexibility of our business model, which allows Kroger to thrive in many different operating environments. We apply technology and innovation to improve freshness, grow our brands [private label] and creating a seamless shopping experience so our customers can get what they want, when and how they want it, without compromising on quality, selection and affordability,” McMullen explained. “We will continue to focus on providing fresh, affordable food to our customers, investing in associate salaries and experience, and creating Zero Hunger | Zero Waste Communities, because when we do these things well, we deliver attractive and sustainable returns to shareholders. »

Among the highlights of the second quarter, sales of Our Brands ID increased 10.2% and Kroger added 170 new and seasonal items to its private label lineup.

This includes the new Smart Way label, described as an “open price” brand. About 150 Smart Way products are now on shelves nationwide — including food, beverages and household staples — with more items expected to roll out to stores this fall, Kroger reported.

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Kroger certified 864 additional stores under its end-to-end fresh produce program in the second quarter.

“As our customers face an ongoing inflationary environment, we know they are looking to get more value from their dollars than ever before,” said Stuart Aitken, senior vice president and chief sales and marketing officer at Kroger. “Smart Way is an exciting and eye-catching product line that will be easy for customers to find. By adding a simplified price opening branding strategy to our brand portfolio, we will be more responsive to every customer, every time.

Kroger noted that Smart Way consolidates 16 legacy private brands into one easily identifiable value-driven brand in the Our Brands portfolio, which also includes brands such as Kroger, Simple Truth, Private Selection, Home Chef and Heritage Farm, among others. .

“We are confident that Smart Way will have something for everyone. From canned vegetables and breads to juices and staples, this new product line has the products families need to put an even more affordable meal on their table,” commented Juan De Paoli, Vice President of Our Brands. at Kroger.

In the second quarter, digital sales increased 8% on a comparable basis after year-over-year declines of 6.3% in the first quarter and 13% in the second quarter of 2021. Kroger said that at second quarter 2022, delivery sales had also increased by 34% – driven by the Kroger Boost membership plan and Ocado’s automated customer fulfillment centers – and the company improved cost-to-service pickup and rates execution of orders. And on the personalization front, the retailer introduced new substitution science to Kroger Pickup that increased customer acceptance rates on recommended substitutions by 800 basis points.

In the second quarter, Kroger certified another 864 stores under its End-to-End Fresh Produce program. This followed the certification of 355 stores in the first quarter.

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Kroger said it introduced a new substitution science for pickup that increased customer acceptance rates on recommended item substitutions.

Ultimately, Kroger posted net income of $731 million in the second quarter of 2022, or $1.00 per diluted share, compared with $467 million, or 61 cents per diluted share, a year earlier. Excluding adjustments for investment gains and contingent consideration from Home Chef, adjusted net income was $661 million, or 90 cents per diluted share, versus $610 million, or 80 cents per diluted share, at the period of the previous year.

Analysts had on average forecast adjusted EPS of 77 cents, with projections ranging from 68 cents to 84 cents, according to Refinitiv.

“Our second quarter results provide further proof that Kroger has the right go-to-market strategy,” said Chief Financial Officer Gary Millerchip. “Our consistent execution of this strategy is creating momentum in our business which, combined with continued home dining trends, gives us the confidence to raise our full-year guidance. We now expect identical sales without fuel are of the order of 4% to 4.5%. [growth] and adjusted net earnings per diluted share in the range of $3.95 to $4.05.

Kroger previously estimated that FY2022 ID sales excluding fuel would grow 2.5% to 3.5% and adjusted EPS would be between $3.85 and $3.95. Prior to Kroger’s Q2 report, Wall Street’s consensus forecast was for fiscal 2022 adjusted EPS of $3.91, with estimates ranging from $3.78 to $4.00, according to Refinitiv.

“Our business model has proven resilient in a variety of operating and economic environments,” added Millerchip, “and we remain confident in our ability to deliver attractive and sustainable total shareholder returns of 8% to 11 % over time.”

CFRA Research analyst Arun Sundaram noted that high grocery and gasoline prices have given Kroger a boost, but that advantage is likely to dissipate over time.

“The operating environment will likely become significantly more challenging as food inflation moderates and fuel margins normalize, while wage pressures are likely to continue,” Sundaram wrote in a research note on Friday. “Second-quarter adjusted EPS of 90 cents (+13% year-on-year) beat 7 cents, driven by identical sales growth (excluding fuel) of 5.8% versus consensus for 4.6%, product supply advantages and unusually high fuel margins (62 cents/gallon vs. 39 cents/gallon a year ago),” he said, describing the “ Kroger’s recent outperformance as unsustainable”.

Sundaram observed, “Fuel margins will likely normalize over time, while Kroger’s main advantage in recent quarters (i.e. we see wage pressures continuing into fiscal 2024, which , combined with weaker identical sales growth, will likely lead to lower operating margins next year.