Kroger Co. reported virtually equal sales for its fiscal second quarter, but saw improved same-store results and adjusted earnings per share that exceeded Wall Street's forecast.
And in a conference call with analysts Thursday, Chairman and CEO Rodney McMullan said that Kroger does not expect to reach its three-year $ 400 million goal of operating profit by 2020, part of Restock Kroger's strategic plan . The news sent the shares in the morning before recovering in the afternoon trading.
For the quarter ended August 17, Kroger's sales were $ 28.17 billion, up 0.5% from $ 28.01
Operating profit increased 1.8% to $ 559 million. Kroger reported a $ 30 million LIFO fee in the quarter versus $ 12 million for the same period last year, driven by higher than expected inflation in the dry food, pharmaceuticals and dairy industries
"Guided by our clients' craze, Kroger delivered its best results with identical sales after launching our transformation plan. Our in-house measures are improving even faster than our identical sales growth, "McMulen (left) told analysts."
"We continue to make significant investments to redefine our customers' experience with groceries. We build a platform of hassle-free experiences to serve customers whatever they want, anytime they want. We know that hassle-free experience is essential to the customer experience today and tomorrow, so we continue to invest heavily in our capabilities in this area, "he explained. "Kroger's digital sales grew a solid 31% in the second quarter. The growth of pickup and delivery sales continued to develop at the midpoint of 30% in the quarter. In the future, we expect the growth rate of our digital sales to moderate over the year, primarily due to the cycling of the home cook and as a result of our disciplined focus on increasing [Kroger] customer ship over other digital offerings such as Vitacost. " In the second quarter, Kroger expanded to 1,780 online grocery stores and 2,225 delivery locations, covering more than 95% of households in the company's market areas.
"The important thing is that we are beginning to see improvement in operating profit trends in our digital business," McMullan said in a call. "Our digital business is becoming smaller than the headwind, which is an important milestone as we continue to invest in new opportunities to support the transition to hassle. But I would like to point out that this is still a significant investment for the company. "
Sales in the Kroger private label portfolio or Our Brands increased by 3.1% year over year. The retailer said it was launching 203 new items of our brands in the quarter.
"Retail and stake growth has led to the highest second-quarter share in our brand history," said McMulen. "And these new items delivered more than $ 137 million in second-quarter sales, further boosting our supermarket business," he added.
McMullen said in the analyst's call that more details behind Kroger's guidance would be shared on the annual Cincinnati-based investor day in November.
"Transformation is incredibly difficult and this is the journey we are taking with Restock Kroger. As we reflect on this journey, we want to be transparent about what went according to plan and what was not expected, "he said.
" For a three-year plan in today's retail environment, there are many participations and claims. That said, I want to reiterate that Kroger is committed to growing FIFO's operating profit in 2020 in 2019, confirmed the guidelines, "added McMullan. "The Restock Kroger Transformation Road is a long-term growth company looking forward to, and the benefits we have seen so far have helped Kroger in our transformation from a grocery to a growth company. We have the right overall strategy and framework for this business and look forward to telling you more about it in November. "
Kroger closed its second quarter in 2019 with a total of 2 599 grocery stores compared to 2,769 a year ago. Her store banners include Kroger, Ralphs, Dillons, Smith & # 39; s, King Soopers, Fry & # 39; s, QFC, City Market, Owen & # 39; s, Jay C, Pay Less, Baker & # 39; s, Gerbes , Harris Teeter, Pick's Save, Copps, Metro Market, Mariano's, Fred Meyer, Food 4 Less and Foods Co, among others.