Kroger Sales Show Virus-Fueled Grocery Demand Holding Steady
(Bloomberg) -- Kroger Co. is seeing strong demand for groceries during the coronavirus pandemic, but new pressure on profitability disappointed Wall Street. The shares fell.
- Same-store sales excluding fuel -- a key metric for retailers -- rose 14.6% in the quarter, beating projections compiled by Consensus Metrix. The chain also said that full-year sales growth will exceed 13% while adjusted earnings will increase by as much as 50%.
- The results show the heightened demand for groceries amid the coronavirus pandemic -- with consumers still stuck at home and many restaurants operating at less-than-full capacity -- isn’t ending anytime soon. The question is which retailers will be able to fully capitalize while the boom lasts.
- Kroger gave more details on its 2020 expectations Friday, saying adjusted earnings will range from $3.20 to $3.30 a share, well above the $2.86 expected by analysts. In June, the company made the unusual move of saying that it would surpass the full-year financial goals it gave before the pandemic hit, but it couldn’t say by how much it would outperform. That contrasted with most other retailers, who have thrown out their earlier guidance.
- Kroger has gained some market share in the grocery sector versus rival Walmart Inc. as it’s able to sell more items at full price, without discounting, but that benefit might now be receding. Kroger said its profit margins expanded in the quarter, but were pressured a bit due to lowering prices on some goods. Investors will look for more details on the analyst call at 10 a.m.
- Kroger’s digital sales rose 127%, an acceleration from the first quarter’s rate. It’s testing a new subscription service for deliveries, where customers will pay $79 a year for unlimited orders. The move comes as Walmart unveils its new membership program, Walmart+, which looks to build on its lead in the online grocery market by offering free same-day delivery and perks like gas discounts. The online grocery market is nearly five times larger than it was just a year ago, according to consultants Brick Meets Click and Mercatus, as consumers remain wary of entering stores.
- The shares fell 1.5% at 9:39 a.m. in New York. The stock advanced about 20% this year through Thursday.
- See the company statement here.
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