Kroger hikes forecast after stronger grocery sales top estimates

Business

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The Kroger supermarket chain’s headquarters is shown in Cincinnati, Ohio.
Lisa Baertlein | Reuters

Kroger on Thursday raised its forecast for the year after stronger third-quarter sales topped Wall Street expectations and inflation continued to push up the prices shoppers pay for milk, eggs and other groceries.

Shares rose about 3% in premarket trading.

Kroger CEO Rodney McMullen said the company is attracting shoppers by offering value. In a news release, he said that is “resonating with shoppers and driving increased customer loyalty” with its private label grocery brands, affordable fresh foods, data-driven promotions and fuel rewards program.

Here’s what Kroger reported for the three-month period ended Nov. 5, compared with Refinitiv consensus estimates:

  • Earnings per share: 88 cents adjusted vs. 82 cents expected
  • Revenue: $34.2 billion vs. $33.96 billion expected

Grocery has been a strong driver of retail sales as inflation hovers near four-decade highs. As some shoppers skip over big-ticket items or pull back on discretionary purchases, retailers that sell food and necessities have attracted a steadier stream of customers.

Walmart, the country’s largest grocer by revenue, also raised its full-year outlook after reporting a strong third quarter. The big-box retailer said its lower-priced groceries drew more shoppers — including a growing number of families with an annual household income of more than $100,000 a year.

At Kroger, identical sales rose 6.9%, excluding fuel, in the third quarter. The industry-specific metric includes sales at supermarkets that have been operating continuously for at least 15 months.

The operator of Ralphs, Fred Meyer and other supermarket chains now expects the metric to climb by 5.1% to 5.3% for the year. It previously forecast growth of 4% to 4.5%.

Net income in the third quarter fell to $398 million, or 55 cents a share, from $483 million, or 64 cents a share a year earlier.

For the full year, Kroger now anticipates adjusted net earnings to range from $4.05 to $4.15. It had previously expected between $3.95 and $4.05. 

Kroger announced in October that it plans buy its competitor, Albertsons, in a deal valued at $24.6 billion. The acquisition, if approved, would combine the second and fourth largest grocers in the country by revenue, according to data from Numerator, a market researcher.

Kroger has faced pushback on the deal from elected officials and even its own employees, who have said it will hurt competition. Earlier this week, McMullen testified before senators who oppose the merger at a congressional hearing. He argued the combined company would lower food prices and improve the experience for customers, as Kroger competes with grocery giant Walmart and newer industry players like Amazon.

As of Wednesday’s close, shares of Kroger are up about 9% so far this year. Shares closed Wednesday at $49.19, down less than 1%. Its market value is $35.21 billion.

This story is developing. Please check back for updates.

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