Same-store sales rose 1.6%, excluding fuel

CINCINNATI — Kroger Co. on Thursday reported a third quarter profit of $317 million, or 39 cents per diluted share, compared with $397 million, or 44 cents a share, a year ago. Overall sales declined slightly to $27.7 billion in the 13 weeks to November 10.

Same-store sales rose 1.6%, excluding fuel.

Kroger’s profits are being squeezed by major investments the company is making to expand its business and spur growth.

Investments this year include an increased stake in U.K. digital grocer Ocado Group PLC, the launch of a new clothing line, a deal with the owners of defunct Toys ‘R’ Us to carry branded toys and other merchandise in Kroger stores, and an arrangement to put Kroger-branded locations in selected Walgreens outlets.

“Kroger is transforming our business model. We’re moving from a traditional grocer to a growth company with both a strong customer ecosystem that offers anything, anytime, anywhere, and asset-light, high-margin alternative partnerships and services,” said Rodney McMullen, Kroger’s chairman and chief executive officer.

“We are strengthening the Kroger ecosystem by reducing costs and investing the savings in our associates, technology and price to grow units, traffic and share. Leveraging our store, logistics and data assets in turn creates incremental new profit streams, which then further redefines the customer experience. In this way, our new growth model will be a virtuous cycle,” McMullen said. “We are doing all of this and remain committed to delivering on our 2020 Restock Kroger financial targets.”

Restock Kroger is the chain’s blueprint for redefining the grocery customer experience. The plan is credited for helping Kroger advance on a number of fronts in the third quarter, including a doubling of the number of households using the company’s digital platform.

In addition, the company’s Our Brands unit notched record sales growth in the quarter, its Dip apparel line was introduced in 300 stores, Kroger hosted its fourth Natural Foods Innovation Summit, and the retailer identified the Cincinnati region for its first automated customer fulfillment center.

The Cincinnati center is the first of 20 that Kroger intends to develop over the next three years to leverage Ocado’s Smart Platform technology, which offers online ordering, automated warehouse fulfillment and delivery logistics.

Accounting for Kroger’s investment in Ocado, the retailer had adjusted earnings of $394 million, or 48 cents per diluted share, in the third quarter.

Kroger lowered its net earnings guidance for the full year to $3.80 to $3.95 per diluted share from $3.88 to $4.03 previously. It maintained its adjusted operating profits guidance of $2.00 to $2.15 for the year.