Kroger Releases 3Q Earnings Report, Continuing ‘Restock’ Investments

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The Kroger Co. today reported GAAP net earnings of $317 million, or $0.39 per diluted share, in the third quarter of 2018, which ended on Nov. 10. Kroger’s third quarter adjusted operating net earnings were $394 million, or $0.48 per diluted share. The 2018 third quarter adjustment item relates to the change in the market value of Kroger’s investment in Ocado securities. GAAP net earnings for the third quarter 2017 were $397 million, or $0.44 per diluted share. Kroger reported identical sales growth, without fuel, of 1.6 percent for the third quarter of 2018.

For the first three quarters of 2018, Kroger’s adjusted operating 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 profit streams. This performance will allow Kroger to continue making incremental Restock Kroger investments while delivering on its guidance range for the year.

“Kroger is transforming our business model,” says Chairman and CEO Rodney McMullen. “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. Restock Kroger is the blueprint for this transformation.

“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.

“We are doing all of this and remain committed to delivering on our 2020 Restock Kroger financial targets.”

Third quarter 2018 results

Total sales decreased 0.3 percent to $27.67 billion in the third quarter compared to $27.75 billion for the same period last year. Excluding fuel, the convenience store business unit divestiture and the merger with Home Chef, total sales increased 1.7 percent in the third quarter over the same period last year.

Gross margin was 21.6 percent of sales for the third quarter. Excluding fuel and the LIFO charge, gross margin decreased 91 basis points from the same period last year but was higher than the 2018 second quarter. Kroger’s shrink rate continued to improve during the third quarter. The gross margin rate reflects the timing and size of price investments compared to a year ago, rising transportation costs, and the growth of the specialty pharmacy business.

Kroger recorded a LIFO charge of $12 million in the third quarter, compared to a $3 million LIFO charge in the same quarter last year.

2018 guidance

Kroger’s GAAP net earnings guidance range is now $3.80 to $3.95 per diluted share for 2018. The previous GAAP range was $3.88 to $4.03 per diluted share.

The change in GAAP guidance is due to the third quarter market value adjustment of $0.09 per diluted share for the company’s investment in Ocado shares.

On an adjusted basis, Kroger maintained its net operating earnings guidance range of $2.00 to $2.15 per diluted share for 2018.

The company today also reconfirmed its identical sales guidance, excluding fuel, for the remainder of the year. It expects second half results to be similar to first half results.

The company says it continues to expect capital investments, excluding mergers, acquisitions, and purchases of leased facilities, to be approximately $3.0 billion in 2018.


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About The Author

A word nerd, grocery geek and three-year member of The Shelby Report. She is a proud new homeowner and a great lover of avocado toast.

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