Kroger Seeks Patience As It Works to Reshape Business --Update
June 20 2019 - 3:55PM
Dow Jones News
By Micah Maidenberg
Kroger Co. executives are seeking patience from investors as
they continue to oversee efforts to transform the business while
facing heightened competition from a range of food retailers and
shifting shopping patterns.
The nation's biggest supermarket operator on Thursday reported
same-store sales excluding fuel rose 1.5% in the latest quarter, a
weaker performance compared to last year and below what analysts
predicted for the period.
Kroger faces competition from growing discount chains like
Walmart Inc. as well as from Amazon.com Inc., which is working to
bring customers into its Whole Foods Market unit and plans to
launch a separate grocery business.
Chief Executive Rodney McMullen said on a conference call that
Kroger must "step up our game." Kroger shares are down 12% over the
past 12 months, compared with a 6.5% gain in the S&P 500.
"What we find is there's a lag between when you make those
improvements and when the customer starts rewarding you with their
checkbook," he said, referring to efforts to upgrade the experience
for shoppers.
The company has been investing in its e-commerce operation and
said on Thursday that home-delivery services or
online-order-and-pickup at stores is now available at 93% of its
locations. Digital sales grew 42% in the first quarter, which ended
May 25.
Kroger has also been developing new businesses, such as selling
consumer data and targeted advertising. The company said those
efforts would yield $100 million incremental operating profit in
its current fiscal year compared with the prior one.
Shares were down about 2.5% in early afternoon trading. Kroger
shares have fallen 12% over the past 12 months, compared with a
6.5% gain in the S&P 500.
The Cincinnati-based grocer reported $37.25 billion in revenue
in the first quarter, down 1% from a year earlier but better than
what analysts polled by FactSet had forecast.
The company attributed the most recent decline to the sale of
its convenience-store business. Kroger has now reported
year-over-year total sales declines for three consecutive
quarters.
Pet products, natural foods and several beverage categories were
strong performers in the latest period, executives said. Kroger
also added 219 of new private-label products during the quarter.
Sales of such brands grew faster than total sales, driven in part
by products like pork-belly bites.
The profit margin for private-label products exceed those Kroger
gets from selling national brands. But overall gross profit margin
fell in the quarter, primarily due to the performance from its
pharmacy business, according to the company.
Kroger reported a profit of $772 million, or 95 cents a share,
compared with $2.03 billion, or $2.37 a share, a year earlier, when
the grocer recorded a gain on the sale of its convenience-store
business.
After adjustments, Kroger reported a profit of 72 cents a share
for the most recent period, beating Wall Street targets by a
penny.
The grocer has been slimming down its operation and hunting for
investment opportunities. In April, it sold a company that makes
ice cream, ice teas and other products. Kroger said in May it
formed a new venture with a private-equity firm to make investments
in consumer brands.
Kroger recently struck new labor contracts with unions in
Indianapolis, Denver and Louisville, and is working on deals with
employees in several other cities, finance chief Gary Millerchip
told analysts.
Like other companies, Kroger has been raising wages amid the
tight labor market. The new contract covering Indianapolis workers
increased starting pay from $8 to $10 per hour for most clerks, the
company said in a statement Monday.
Write to Micah Maidenberg at micah.maidenberg@wsj.com
(END) Dow Jones Newswires
June 20, 2019 15:40 ET (19:40 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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