Sales Continue to Grow for Kroger in Q2
Total sales at The Kroger Co. increased 4 percent to $26.6 billion in the second quarter of its 2016 fiscal year that ended Aug. 13, with same-store sales up 1.7 percent, excluding fuel, over a year ago.
Adjusted net earnings for the Cincinnati-based grocery giant were $454 million, or 47 cents per diluted share, compared to $433 million a year ago.
"I'm very proud of our associates for their determined focus on always making a difference for our customers,” said Kroger Chairman and CEO Rodney McMullen. “Their execution of our Customer 1st strategy in a deflationary environment helped deliver growth in identical store sales, units and market share. We are focused on long-term performance over a three-to-five year horizon. We have the right strategy, the right people, and the financial flexibility to execute our strategy, which allows us to continue investing in our associates and our business and growing market share. By staying on our strategy, we create long-term value for our shareholders."
As a result of continued deflation, Kroger lowered its net earnings guidance range to $2.03 to $2.13 per diluted share for 2016. The previous guidance range was $2.19 to $2.28, which did not anticipate the 7-cent charge from the company's commitment to restructure certain multi-employer pension obligations.
“Even though the current environment is volatile, we are confident that we will navigate today’s challenges and continue to deliver value for our customers and shareholders,” McMullen said. “While we expect continued deflation and tough year-over-year comparisons for the remainder of this year – and even into early next year – as we know from past experience, the environment won’t be deflationary forever.”
For same-store sales growth, excluding fuel, the company expects the remainder of 2016 to be in the 0.5 percent to 1.5 percent range, which is 1.4 percent to 1.8 percent for the full year.
Despite these adjustments, McMullen said, “our growth objectives are on a 3- to 5-year rolling cycle, and we remain confident in those targets. We are in this for the long run and not a 12-week quarter or even a particular year. We have demonstrated our ability to invest at the appropriate times to create momentum when the environment improves.”
The company lowered expected capital investments – excluding mergers, acquisitions and purchases of leased facilities – to $3.6 billion to $3.9 billion for the year, down from $4.1-4.4 billion.
Investments
Pointing to its continued investment in the shopper experience, Kroger now offers its ClickList and ExpressLane online ordering services in almost 400 locations.
Additionally, McMullen noted the company’s recent merger between its specialty pharmacy subsidiary, Axium, and ModernHealth, which closed last week. This deal, he said, “further expands our presence in the high-growth specialty pharmacy area, and connects nicely with our retail pharmacies and broader health and wellness strategy.”
EVP and CFO Mike Schlotman noted that Kroger’s integration of Roundy’s “continues to be on plan.” Kroger has two dedicated management teams, one each for Roundy’s in Wisconsin and Mariano’s in Illinois, “to take into account the uniqueness of the formats in each location,” he said. “These leadership teams have a mix of Kroger and Roundy’s experience. We are pleased with the early results of our Roundy’s investments in Wisconsin and we remain excited about this opportunity.”
Labor Update
The company noted its $111 million commitment to the UFCW Consolidated Pension Plan, part of an agreement to transfer the liabilities of two troubled multiemployer pension plans. Schlotman said this “protects pensions already earned and will provide greater stability for the future benefits of more than 6,500 Kroger associates and retirees.”
Meanwhile, Kroger recently agreed to new contracts covering store associates in Little Rock, Nashville, and Southern California. Additionally, the retailer is negotiating contracts with the UFCW for Fry’s associates in Arizona, and store associates in Michigan and Atlanta, and is negotiating a new contract with the Teamsters for its Roundy’s Distribution Center.