FINANCE

Kroger Q1 profit beats Street; gives upbeat outlook

BY Marianne Wilson

The Kroger Co.’s investments to make itself more competitive in the rapidly evolving grocery sector are paying off as the supermarket giant delivered a strong first quarter performance that topped the Street.

Net income totaled $2.03 billion, or $2.37 per share, in the quarter ended May 26, up from $303.0 million, or 32 cents per share, in the year-ago period. (The gain includes the sale of Kroger’s convenience store business, which added $1.59 per share.) Adjusted earnings per share was 73 cents. Analysts had expected earnings per share of 63 cents.

Revenue increased 3.4% to $37.5 billion. Analysts had expected sales of $37.3 billion. Digital sales surged 66%.

Same-store spaces, including Kroger Specialty Pharmacy and ship-to-home but excluding fuel, rose 1.9%.

Kroger made some key moves in the first quarter, including extending its partnership with U.K.-based online grocery retailer Ocado, Kroger will be Ocado’s exclusive partner the U.S., a move that will enable the grocer to leverage Ocado’s smart platform, which supports online ordering, automated fulfillment and home delivery capabilities.

Also in the quarter, Kroger said it is acquiring Home Chef ,the country’s largest private meal kit company by sales.

Analyst Neil Saunders of Global DataRetail commented that “as much as Kroger is managing the daily dynamics of the market, it also has one eye on the future.”

“The recent partnership with Ocado and the Home Chef merger agreement both speak to the fact that Kroger is looking to stay one step ahead of the competition by gaining a toehold in rapidly-growing segments of the market,” he said. For more analysis, click here.

In a statement, Kroger chairman and CEO Rodney McMullen said the chain’s Restock Kroger program, which involves major investments in technology and other areas, was off to a fantastic start.

“Everything we do supports our customers engaging seamlessly with Kroger,” he said. “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.”

Kroger expects 2018 same-store sales growth excluding fuel to range from growth of 2% to 2.5%, ahead of Street estimates for 1.9% growth. It also raised the low end of its earnings guidance to a range of $3.64 to $3.79, from $3.59 to $3.79. Adjusted EPS is now expected to be in the range of $2.00 to $2.15, up from $1.95 to $2.15.

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