Kroger's Q1 results benefit from 'Restock' plan

Kroger reported on Thursday that its Restock Kroger program is off to a “fantastic start,” leading to strong cost controls, alternative revenue streams and first quarter net earnings per diluted share that were slightly ahead of the company's internal expectations.

"Restock Kroger is off to a fantastic start. Everything we do supports our customers engaging seamlessly with Kroger. Kroger is creating the future of retail by innovating our core business and adding exciting partnerships like Ocado and our planned merger with Home Chef. We are on track to generate the free cash flow and incremental FIFO operating profit that we committed to in Restock Kroger. We are confident in our ability to deliver on our plans for the year and our long-term vision to serve America through food inspiration and uplift,” stated chairman and CEO Rodney McMullen.

For the first quarter ended May 26 reported net earnings were $2 billion, or $2.37 per diluted share (includes convenience store sale gain). Adjusted net earnings for the quarter were $626 million, or 73 cents per diluted share. In the year-ago period, net earnings were $303 million, or 32 cents per diluted share. Adjusted net earnings for the first quarter 2017 were $546 million, or 58 cents per diluted share.

Total sales increased 3.4 percent to $37.5 billion in the first quarter compared with $36.3 billion for the same period last year. Total sales, excluding fuel, increased 2.3 percent in the first quarter over the same period last year. Excluding fuel and the effect of Kroger's recently sold convenience store business unit, total sales increased 2.8 percent.

Kroger reported identical supermarket sales, without fuel, of 1.4 percent for the first quarter of 2018. When calculating identical sales to be more inclusive of company business units – including Kroger Specialty Pharmacy and ship-to-home solutions – Kroger's identical sales, without fuel, were 1.9 percent in the first quarter. The company stated that it intends to use this calculation going forward as a more appropriate measure to track Kroger's performance.

The retailer outlined several first quarter 2018 Restock Kroger highlights, including:

  • Grew digital sales 66 percent in the first quarter;

  • Achieved highest-ever dollar share in the history its Our Brands, driven by double-digit growth in Simple Truth and Simple Truth Organic;

  • Announced partnership with online grocery supermarket Ocado to serve shoppers anything, anytime, anywhere;

  • Completed sale of convenience store business unit for $2.15 billion;

  • Entered into merger agreement with Home Chef to revolutionize mealtime;

  • Expanded partnership with Instacart to increase customer delivery coverage area; and

  • Announced new offerings to enhance Kroger Precision Marketing powered by 84.51°, which connects advertisers with digitally-engaged customers at the point of purchase and creates alternative revenue for Kroger by monetizing six billion annual digital interactions on owned properties.

In issuing its 2018 guidance, Kroger stated that it expects identical sales growth, excluding fuel, to range from 2 percent to 2.5 percent in 2018. This reflects the company's updated definition of identical sales and is supported by its expectation for identical supermarket sales that is the same as its original guidance for the year.

Kroger raised the low end of its net earnings guidance range to $3.64 to $3.79 per diluted share for 2018. The previous GAAP range was $3.59 to $3.79. The company raised the low end of its adjusted net earnings guidance range to $2 to $2.15 per diluted share for 2018, from $1.95 to $2.15 previously.

The Restock Kroger plan, which was unveiled in October, consists of four main drivers:

  • Redefine the food and grocery customer experience

  • Expand partnerships to create customer value

  • Develop talent

  • Live Kroger’s purpose