The Kroger Co. is reporting net earnings of $508 million, or $0.62 per diluted share, for the second quarter of 2018, which ended on Aug. 18. Kroger’s second quarter adjusted net earnings were $336 million, or $0.41 per diluted share. Net earnings for the second quarter of 2017 were $353 million, or $0.39 per diluted share. Kroger reported identical sales, without fuel, of 1.6 percent for the second quarter of 2018.
For the first half of 2018, Kroger’s adjusted net earnings per diluted share result was slightly ahead of the company’s internal expectations due to the solid early execution of Restock Kroger, the company says, including process changes that led to sustainable cost controls and higher-margin alternative revenue streams.
“We are only two quarters into our three year Restock Kroger plan, and we are making solid progress,” said Kroger Chairman and CEO Rodney McMullen. “Kroger customers have more ways than ever to engage with us seamlessly through our recently launched Kroger Ship, expanded availability of Instacart, successful ClickList offering, and selling Simple Truth in China through Alibaba’s Tmall.
“We feel good about our net earnings per diluted share and ID sales results in the second quarter. We expect our investments in space optimization during the first half of 2018 to become a tailwind late in the third quarter.
“We are on track to generate the free cash flow and incremental FIFO operating profit that we committed to in Restock Kroger for 2018-2020, and to deliver on our long-term vision to serve America through food inspiration and uplift.”
Total sales increased 1.0 percent to $27.9 billion in the second quarter compared to $27.6 billion for the same period last year. Excluding fuel, the convenience store business unit divestiture and the merger with Home Chef, total sales increased 1.8 percent in the second quarter over the same period last year.
Gross margin was 21.3 percent of sales for the second quarter. Excluding fuel and the LIFO charge, gross margin decreased 36 basis points from the same period last year. Kroger’s shrink rate continued to improve during the second quarter. The gross margin rate reflects the company’s price investments, rising transportation costs, and growth of the specialty pharmacy business.
Kroger recorded a LIFO charge of $12 million in the second quarter, compared to a $18 million LIFO charge in the same quarter last year.
Operating, general and administrative costs as a rate of sales, excluding fuel, increased 36 basis points, driven entirely by higher expense for incentive plans as compared to last year. Rent and depreciation, excluding fuel, decreased by 4 basis points.
FIFO operating margin on a rolling four quarters basis decreased 26 basis points compared to the prior year, excluding fuel, mergers, the 53rd week and the adjustment items from the respective periods.
Kroger did not adjust the rates as a percent of sales described above for the divestiture of the convenience store business and the merger with Home Chef because the effect was insignificant.