Kroger gearing up to keep Express Scripts patients; reports 35th consecutive quarter of positive ID sales

CINCINNATI — Kroger president, COO and director Rodney McMullen told analysts Friday morning that the grocer is gearing up for Walgreens' reunion with Express Scripts' pharmacy network as of Sept. 15. "We've done a lot of research to make sure we understand those customers — what they like about Kroger, what they like about Walgreens — and we've aggressively worked on trying to make sure that the things those customers liked better about Walgreens, [that] we've changed that," he said. "Overwhelmingly, the things they liked [about Kroger] was the one-stop, the value, the pricing that we offer. … Customers are really satisfied with where we are there, which we think will really help with the stickiness of those customers."

Kroger on Friday reported a 3.9% increase in total sales, including fuel, to $21.7 billion for the second quarter ended Aug. 11. Fuel contributed 100 basis points to the percent increase. Sales per diluted share totaled 51 cents, up 10.9%, beating analyst consensus by 2 cents. 

Kroger's stock was trading 2.5% down at around $22.50 in afternoon trading. 

Kroger shares were down 10.2% for the year through Tuesday, noted Charles Grom, research analyst for Deutsche Bank, in a note released earlier this week. Even though Kroger has been delivering on sales growth rates, many investors have shied away from supermarket stocks given competitive challenges across the industry. "Investors have grown more concerned about the impact nontraditional food retailers are having on sales/profitability in the conventional grocery space," Grom noted. "As such, multiples have come down across the board."

Kroger reported identical supermarket sales growth, without fuel, of 3.6% in the second quarter. With that, Kroger recorded its 35th consecutive quarter of positive identical supermarket sales, which the grocer credited to increased transactions and total household growth. 

“Kroger shareholders once again benefited from our Customer First strategy," stated David Dillon, Kroger chairman and CEO. "Increased customer loyalty and solid cost controls allowed us to grow sales, profitability and shareholder value.” The Kroger Customer First strategy focuses on realizing cost savings and efficiency gains across Kroger's "four keys," which comprise of prices, people, products and shopping experience.

Kroger is bullish on the recovering economy, and accordingly increased its raised earnings per diluted share guidance for the fiscal year to a range of $2.35 to $2.42. Identical store sales growth rates are still expected to fall between 3% and 3.5%, Mike Schlotman, Kroger CFO and SVP, told analysts Friday morning.