Shoppers pay less at checkout as prices stabilize

CINCINNATI — The Kroger Co. today said revenue declined in the second quarter of fiscal 2023 as the rate of inflation slowed.

Kroger reported net sales of $33.8 billion for the three months to August 12, down from $34.6 billion in the comparable period a year ago.

Kroger reiterated its forecast for the full year but said it expects the continued decline in consumer prices would suppress revenue.

“The strength and diversity of Kroger’s business model is delivering consistent results in what remains a challenged environment,” Rodney McMullen, Kroger’s president and chief executive officer, said in an earnings release. “By investing in price and providing more personalized offers, we are helping customers stretch their budgets and manage the ongoing effects of reduced government benefits, inflation and higher interest rates. Kroger is funding these investments by collaborating with vendors to deliver exceptional value, managing costs and growing alternative profit businesses.”

Kroger posted a net loss of $180 million, or 25 cents per share, compared with a gain of $731 million, or $1 per share, in the year-ago period.

The company took a $1.4 billion charge, equating to a per-share loss of $1.54, related to its agreement in principle to pay up to $1.2 billion to U.S. states and local governments and $36 million to  Native American tribes over 11 years to settle the majority of claims that its lax oversight of pharmacy sales contributed to the nationwide opioid epidemic.

More ‘digitally engaged’ households than a year ago

Kroger said second-quarter identical-store sales, excluding fuel, increased 1%.
Digital sales increased 12% in the period, with delivery sales up 24% from a year earlier.

Another second-quarter highlight was announcement of a new in-house advertising platform for Kroger Precision Marketing allowing for greater flexibility to serve clients and improve outcomes for brands, the company said.

Also in the plus column for the quarter is a gain of about 1.2 million “digitally engaged households” compared with a year ago.

The quarter marked the 10-year anniversary of its private-label Home Chef brand as a billion-dollar brand.

Kroger also said its accelerated Fresh Produce Initiative reached 1,940 stores by quarter’s end, helping drive higher comps (excluding fuel) in certified stores.

The company said it initiated a response to the Maui wildfires during the second quarter, and launched a revamped Kroger Health Savings Club to make medications purchased at its pharmacies more accessible and affordable.

Kroger also said it expects to continue to generate free cash flow and that executives remain committed to investing in the business to drive long-term sustainable net earnings growth, and to maintain Kroger’s s prevailing investment-grade debt rating.

The company expects to continue to pay its quarterly dividend and expects this to increase over time, subject to board approval. Kroger paused its share repurchase program following the announcement last fall of its intent to merge with Albertsons Cos.