For its first quarter ended May 25, The Kroger Co. reported that its identical store sales were up 1.5 percent (without fuel) and its digital sales grew by 42 percent.
Kroger’s total sales were $37.3 billion in the quarter vs. $37.7 billion for the same period last year, attributable to the sale of Kroger’s convenience store business unit. Total sales excluding fuel and the effect of selling the c-store business increased 2.0 percent vs. last year.
Operating profit was $901 million; adjusted FIFO operating profit was $957 million, in line with expectations set forth in the company’s “Restock Kroger” business plan.
Rodney McMullen, chairman and CEO of the Cincinnati-based grocery company, said, “We are building momentum in the second year of Restock Kroger, which is off to a solid start. The entire company is focused on redefining the grocery customer experience, improved upon by exciting partnerships that will create value. We are on track to generate the free cash flow and incremental adjusted FIFO operating profit that we committed to in 2019 as part of Restock Kroger. We are confident in our ability to deliver on our plans for the year and our long-term vision to serve America through food inspiration and uplift.”
Kroger’s financial strategy is to use its free cash flow to drive growth while also maintaining its current investment grade debt rating and returning capital to shareholders. Over the last four quarters, Kroger has used cash to invest a combined $589 million in Ocado securities and Home Chef; contribute an incremental $185 million pre-tax to company-sponsored pension plans; repurchase 5 million common shares for $216 million; pay $440 million in dividends; and invest $3.0 billion in capital (excluding mergers, acquisitions and purchases of leased facilities).
The company also has reduced its net total debt by $1.7 billion since the end of fiscal 2018.
‘Restock Kroger’ accomplishments
Kroger reported its progress on several elements of the Restock Kroger plan.
In the scope of its efforts to “Redefine the Grocery Customer Experience”:
• Our Brands sales were up 3.3 percent vs. prior year, led by double-digit growth in Simple Truth, and 219 new Our Brands items were launched.
• Expanded to 1,685 pickup locations and 2,126 delivery locations, covering over 93 percent of Kroger households.
• Introduced test of new Home Chef retail meal solutions, including oven-ready options, Heat & Eat choices and lunch kits.
To improve as a “Partner for Customer Value,” Kroger continues to develop alternative profit streams, including Kroger Personal Finance, customer data insights and media businesses. These profit streams are expected to contribute an estimated incremental $100 million in operating profit in 2019, compared to 2018. This is in line with year 2 Restock Kroger expectations.
“By leveraging unique consumer-driven capabilities to create additional value for customers and shareholders, Kroger is creating a virtuous circle built upon the rich collection of proprietary data generated by the grocery business,” the company says. “Data gathered from the 96 percent of transactions tethered to the loyalty card is used to improve the customer experience and create new margin rich, asset-light business opportunities.”
The company added that “ventures at various stages of incubation are also a component of the Alternative Profit portfolio, such as the recently-announced collaboration with Lindsay Goldberg to form PearlRock Partners, a platform to identify, invest in and help grow the next generation of leading consumer product brands. Initiatives like this are expected to have a minimal impact during Restock Kroger, but to become more meaningful beyond 2020.”
The company also has broken ground on first Kroger-Ocado center in Monroe, Ohio, and revealed that the second location will be in Groveland, Florida, in Lake County.
Also during the first quarter, Kroger completed the sale of YouTech to Inmar and established a long-term service agreement; completed the sale of its Turkey Hill business; expanded its media business portfolio with new ad units, including a direct relationship with Pinterest to “bridge the journey between inspiration and purchase for both customers and advertisers.”
In the area of Developing Talent, Kroger earned perfect score of 100 percent on the Human Rights Campaign’s Corporate Equality Index and recognized as one of the Best Places to Work for LGBTQ; Kroger Technology was named to Computerworld magazine’s Top 100 Best Places to Work in IT; Yael Cosset, SVP and CIO, was recognized by Business Insider as a top industry executive who is transforming retail; and Colleen Lindholz, president of Kroger Health, recognized by Forbes for her leadership in the food industry to impact communities and improve lives.
Finally, under the heading of “Live Kroger’s Purpose,” the company:
• Announced relationship with sustainability innovator Loop to pilot a new reusable packaging system;
• Was named a 2019 Engage for Good Gold Halo Award winner in the Best Environmental Initiative category for Zero Hunger I Zero Waste; and
• Eliminated single-use plastic grocery bags in the Pacific Northwest QFC division.
Kroger operates 2,761 retail food stores under a variety of banners across the country.