Total sales and comps decline as shoppers spend less

CINCINNATI — The Kroger Co. today said third-quarter sales declined from a year earlier as cautious shoppers spent less. But its operating profit grew more than 8% as the retailer gained market share and posted an 11% increase in digital sales compared with a year ago. The number of digitally engaged household increased 13% in the quarter, Kroger said.

“As consumer spending tightens, we are focused on providing customers with exceptional value,” said Rodney McMullen, Kroger’s chairman and chief executive officer. “By maintaining our long-term commitment to lower prices, personalized promotions and rewards, we are growing households and increasing loyalty, positioning Kroger for sustainable future growth.”

Kroger posted sales of $34 billion in the third quarter, down from $34.2 billion in the comparable period a year ago. Identical-store sales, excluding fuel, declined 0.6%.

Gross margin was 22% of sales for the third quarter. The FIFO gross margin rate, excluding fuel, increased 3 basis points compared to the same period last year.

Kroger attributes the increase in the FIFO gross margin rate to strength in its store brands, sourcing benefits, and the termination of a contractural agreement with Express Scripts. These benefits were partially offset by higher shrink and advertising costs, and increased price investments.

Gains in its digital.operations were driven by a 20% year-on-year bump in delivery sales, Kroger said. The company also benefited from strength in what it calls its alternative profit businesses. One such business, Kroger Precision Marketing, celebrated its sixth anniversary during the third quarter, the company said.

Another third-quarter highlight was the acceleration of Kroger’s fresh produce initiative, with a 2,053 stores now certified. The company also said it also continued to expand its Our Brands portfolio via the addition of Kroger Mercado, featuring Hispanic-inspired products. And its commitment to local souring was bolstered during the quarter with a pledge to increase the amount of local products in stores by 10% following approval of its proposed buyout of Albertsons Cos.

“Kroger delivered another quarter of consistent adjusted-net earnings-per-diluted-share growth, demonstrating the strength of our value creation model,” said Gary Millerchip, Kroger’s chief financial officer.

“Looking to the rest of the year, we are updating our full-year guidance to reflect the impact of near-term economic pressures and food-at-home disinflation. We now expect full-year identical sales without fuel to be in the range of 0.6% to 1% (with underlying growth of 2.1% to 2.5% after adjusting for the effect of Express Scripts), and adjusted FIFO net operating profit to be in the range of $4.9 to $5 billion,” Millerchip said. “At the same time, we are confident in our ability to navigate these near-term headwinds and we are raising the lower end of our full-year adjusted net earnings per diluted share guidance range. We now expect adjusted EPS to be between $4.50 to $4.60. Kroger remains committed to delivering attractive and sustainable returns for shareholders.”