Kroger Co. (KR, Financial) released its first-quarter results before the opening bell on June 17.
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.
Brief summary of the quarter
The U.S. supermarket chain posted adjusted earnings per share of $1.19, which was ahead of expectations of $1.01. Revenue of $41.3 billion was down from the $41.5 billion reported in the prior-year quarter. Analysts had projected revenue of $39.67 billion.
Comparable store sales, barring fuel, dipped 4.1%. Digital sales surged 16%.
The gross margin came in at 22.6% of sales in the reported quarter. The FIFO gross margin rate decreased 65 basis points, adjusting for fuel sales. The company attributed the decrease to price investments, mix changes and sales deleverage associated with shrink, transportation, warehousing and advertising expenses. This was partially negated by sourcing benefits and growth in Alternative Profits.
At quarter-end, the company had cash and temporary cash investments of a combined $2.31 billion and long-term debt (including obligations under finance leases) of $12.97 billion.
Key insights
Due to the Covid-19 pandemic, Kroger was 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:
"Kroger is even better positioned to connect with our customers than we were prior to the pandemic as a result of our relentless focus on leading with fresh and accelerating with digital. I am incredibly proud of our amazing associates who continue to be there for our customers, communities, and each other when they need us most and who strive to deliver a full, fresh, and friendly experience to every customer, every time."
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.
During the quarter, the company partnered Drone Express to provide grocery deliveries using autonomous drones. Both the companies said that the products will be sold to customers as one combined package and that the weight of the bundled product cannot exceed 5 pounds (or less than 2.5 kilograms). Beth Flippo, Chief Technology officer, TELEGRID commented the following:
“Autonomous drones have unlimited potential to improve everyday life, and our technology opens the way to safe, secure, environmentally friendly deliveries for Kroger customers. The possibilities for customers are endless – we can enable Kroger customers to send chicken soup to a sick friend or get fast delivery of olive oil if they run out while cooking dinner.”
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 guidance for the fiscal year 2021. Adjusted earnings per share are projected to be around $2.95 to $3.10. Adjusted operating profit is estimated to be between $3.5 billion and $3.7 billion. Capital spending guidance is in the $3.4 billion to $3.6 billion range, while free cash flow is expected to be in the $1.8 billion to $2 billion range.
