CINCINNATI – Kroger Co. shares tumbled as the retailer posted third-quarter performance suggesting that the high point of its pandemic-induced earnings is over. While earnings exceeded investor expectations, sales lagged and the company’s sales growth slowed from the first and second quarters.
Kroger Co. shares, listed on the New York Stock Exchange, closed at $ 30.88 on December 3, down $ 1.41, or 4.4%, from $ 32.29 the previous day.
Net income attributable to Kroger Co. for the third quarter ended November 7 was $ 631 million, equivalent to 81 ¢ per common share, a significant increase from $ 263 million or 32 ¢ per share for the same period last year. The company saw lower operating expenses as a percentage of sales for the current quarter.
Revenue rose to $ 29.72 billion, up 6.3% from $ 27.97 billion last year. Excluding fuel and divestments, sales increased 11.3%, according to the company.
Kroger’s identical no-fuel sales rose 10.9% for the quarter, driven by broad-based growth across all departments, said Gary Millerchip, chief financial officer.
“The meat and production departments were groundbreaking and continued to underline the importance of fresh produce and the differentiation in quality and range for our customers,” he said during a request for results on December 3rd.
During the quarter, Kroger expanded to 2,213 pick-up locations and 2,468 delivery locations, covering more than 98% of Kroger households. The company’s digital sales rose 108% in the quarter, adding around 4.6% to identical sales without fuel, according to Millerchip.
“At the same time, digital revenue growth was incrementally profitable for the quarter, and we are continuing to improve digital profitability by reducing the cost of fulfilling a pick-up order and accelerating digital advertising revenue,” said Millerchip. “We see a clear path to further improve digital profitability by using our personalization tools to increase the size of the shopping cart and the sales mix, further reduce order fulfillment costs through process improvements and automation, and digital media sales to increase further. “
Krogers Private Label grew 8.6% in the third quarter, said William Rodney McMullen, chairman and CEO.
“Private Selection grew over 17% and Simple Truth grew nearly 15%,” said McMullen. “These are incredible numbers and show that while there are many competitors offering private label products, Kroger’s unique approach to our brands is a differentiator in a competitive moat.”
During the quarter, Kroger launched 250 new items under its private label products, most in a single quarter, McMullen said.
“New for the quarter included product launches in hot spots such as fresh produce, frozen foods, and the addition of our plant-based Simple Truth collection to showcase more than 50 new fresh and flavorful plant-based foods at affordable prices,” he said.
Management increased its guidance for the full year based on continued strong performance, market share gains, and anticipation of continued trends in home food consumption for the remainder of the fiscal year. The company expects identical sales growth excluding fuel of 14% and adjusted earnings per share growth of 50% to 53%.
“Our policy is for continued customer investment and ongoing COVID-19-related costs to protect the safety of our customers and employees. This is consistent with continued implementation of cost-saving initiatives and the growth of alternative profits,” said Millerchip. “Looking ahead to 2021, we believe our performance will be stronger than we would have expected before the pandemic, using this as a two-year stacked result for identical sales with no fuel growth and a compound growth rate over 2020 and 2021 for adjusted earnings Growth per share. We remain confident in our business model and our ability to consistently generate attractive total returns for shareholders. “