Kroger Q2 mixed as profit tops Street, but sales come up short
Kroger Co.’s second quarter profit topped estimates, but its sales came in below estimates amid ongoing intense competition in the grocery sector.
Net income rose 43.9% to $508 million, or 62 cents a share, from $353 million, or 39 cents a share, in the same period a year ago. Excluding non-recurring items, adjusted earnings per share came in at 41 cents, above estimates of 38 cents.
Sales increased to $27.87 billion from $27.60 billion, below estimates of $27.93 billion. Same-store sales rose 1.6%, below expectations.
On its quarterly earnings call, Kroger management said that its ongoing efforts to adjust store layouts and rearrange brands on the shelves, with an emphasis on its own labels, impacted same-store sales.
“This effect is not a surprise to us,” said CEO Rod McMullen on the call. “We expect the headwinds from space optimization during the first half of 2018 to become a tailwind late in the third quarter.”
Looking ahead, the company raised its net EPS guidance range to $3.88 to $4.03 from $3.64 to $3.79, but affirmed its adjusted EPS outlook of $2.00 to $2.15.
Kroger has been investing in a slew of initiatives to grow its online business as it faces fierce competition in the space from Amazon and Walmart.
“We are only two quarters into our three-year Restock Kroger plan, and we are making solid progress,” McMullen stated in a release. “Kroger customers have more ways than ever to engage with us seamlessly through our recently-launched Kroger Ship, expanded availability of Instacart, successful ClickList offering, and selling Simple Truth in China through Alibaba’s Tmall.”
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Commentary: To survive, retailers must team up and make strategic partnership
Scale seems to be integral to retail survival nowadays and we are seeing alliances between some of Europe’s largest retailer. Finally, after month of rumours, Germany’s two major department store chains Kaufhof and Karstadt have agreed to merge. The deal will unite retail operations with annual sales of around 4.6 billion euros and combined shares of almost 85% of the department store market according to Euromonitor’s 2017 data.
Following years of declining sales, Kaufhof was sold to Hudson’s Bay in 2015, which then unsuccessfully tried to revive the retailer modernising outlets and the product portfolio, as well as through a better multi-channel approach hoping this would increase sales. In contracts, Karstadt has last year achieved to grow again through a better multi-channel approach particularly e-commerce. This merger now is a consequence of overall struggling department store sales over the last years. However, both Karstadt and Kaufhof still possess outlets in prime locations and have the potential to become a modern multi-channel retailer.
The combination will be 49.99% owned by Canadian retail giant Hudson’s Bay, while Austrian Karstadt owner Signa will hold the remainder. This merger has the potential to stimulate growth again as this partnership is a strategical opportunity to equip both companies with the capabilities to strengthen operations and overcome the challenges in the German retail market.
To survive, retailers must team up and make strategic partnership. This mega-merger scale trend is a strategy to drive down cost but also a way to face the Amazon and other internet giant’s threats like Zalando over the retailing world. Amazon alone generates several billion Euros in Germany. Buying alliances are en vogue in Europe mainly within food retailers but not only. After the merger between Sainsbury’s and ASDA in the UK, the buying alliance called “Horizon” between Auchan, Schiever and German distributor in continental Europe, the recent partnership in-between Tesco and Carrefour, JD Sports recent purchase of House of Fraser was the latest ground-breaking news this summer 2018. The telecom sector is no outlier as well with the confirmed plans to merge in Australia Vodaphone Hutchinson and TPG Telecom in August 2018.
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