Kroger Co. KR released its second-quarter results before the opening bell on Sept. 11.
The grocery store chain surpassed expectations for both earnings and revenue as customers bought large quantities of items in preparation for the coronavirus pandemic. In addition, strong digital sales aided the company's overall results for the quarter.
Summary of the quarter
The U.S. supermarket chain posted adjusted earnings of $0.73 per share, which was ahead of expectations of $0.51. Revenue of $30.49 billion was up from the $28.2 billion reported in the prior-year quarter. Analysts had projected revenue of $30.06 billion.
Comparable store sales, barring fuel, surged 14.6%. Digital sales skyrocketed 127%.
The gross margin came in at 22.8% of sales in the reported quarter. The FIFO gross margin rate increased 5 basis points, adjusting for fuel sales. The company attributed the increase to sales leverage associated with shrink, transportation, warehousing and advertising expenses.
At quarter-end, the company had cash and cash equivalents of $372 million and total debt of $13.5 billion.
Key insights
Due to the Covid-19 pandemic, Kroger started providing no-contact delivery services, low-contact pickup services as well as ship-to-home orders. In addition, the company decided to forgo pickup fees. The company also waived the minimum purchase requirement and continued growing its contactless payment solutions like Kroger Pay.
Chairman and CEO Rodney McMullen had the following to say:
"Customers are at the center of everything we do and, as a result, we are growing market share. Kroger's strong digital business is a key contributor to this growth, as the investments made to expand our digital ecosystem are resonating with customers. Our results continue to show that Kroger is a trusted brand and our customers choose to shop with us because they value the product quality and freshness, convenience, and digital offerings that we provide."
In view of ensuring quick customer service, Kroger made investments to strengthen its omni-channel facility, which integrates the online and physical methods of shopping. Additionally, the company made investments to improve the supply chain and grow its manpower. The company has also been hiring more employees in order to meet the rising customer demand amid the pandemic.
Kroger's transformational plan, known as the "Kroger Restock," which consists of investments in its omnichannel platform, recognizing different lucrative streams with high margins and reduction of expenses, gained traction during the quarter.
Guidance
Kroger has provided full year 2020 guidance figures. The company expects earnings to fall within the range of $3.20 and $3.30 per share, translating to growth of 45 % to 50%. Likewise, same-store sales, minus fuel, are projected to grow by more than 13%.
Disclosure: I do not hold any positions in the stocks mentioned.
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