Kroger Co. (KR, Financial) released its third-quarter results before the opening bell on Dec. 3.
The grocery store chain surpassed earnings expectations as the average ticket size increased. 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 per share of $0.71, which was ahead of expectations of $0.66. Revenue of $29.7 billion was up from the $28 billion reported in the prior-year quarter. Analysts had projected revenue of $29.98 billion.
Comparable store sales, barring fuel, surged 10.9%. Digital sales skyrocketed 108%.
The gross margin came in at 23% of sales in the reported quarter. The FIFO gross margin rate decreased 2 basis points, adjusting for fuel sales. The company attributed the decrease to price investments and mix changes, which was partially negated by sales leverage associated with shrink, transportation, warehousing and advertising expenses.
At quarter-end, the company had cash and cash equivalents of $367 million and long-term debt (including obligations under finance leases) of $11.9 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:
"We delivered strong results in the third quarter. Customers are at the center of everything we do and sales remain elevated as we continue to enhance our competitive moats – Fresh, Our Brands, Data & Personalization and Seamless. We are executing against our strategy even during the pandemic and continue to grow market share."
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 $3.30 and $3.35 per share, translating to growth of 50% to 53%. Likewise, same-store sales, minus fuel, are projected to grow by around 14%.
Disclosure: I do not hold any positions in the stocks mentioned.
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