Kroger Slips on Low Earnings

Company reports good second-quarter revenue growth yet offers low earnings guidance

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Sep 08, 2017
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The Kroger Co. (KR, Financial), a major U.S. grocery store, said second-quarter net earnings declined $30 million from the prior-year quarter despite accelerating sales growth.

Brief summary of earnings

The Cincinnati grocery store increased net sales 3.9% year over year, driven primarily by “positive identical supermarket sales growth,” according to CEO Rodney McMullen. The CEO reiterated Kroger’s strategy of “quality without compromise,” i.e., putting the customer first in all company operations. Such strategy resulted in increased traffic, unit movement and customer price perception.

Although the company increased company sales, Kroger also reported higher operating costs during the quarter, including a LIFO (last-in first-out) charge of $18 million. The higher LIFO charge increased the cost as a rate of sales by 0.12%, which contributed to a 0.3% decline in gross margin. Kroger also increased its rent and depreciation expenses by 0.15%.

Company confirms a lower earnings guidance

Management reaffirmed its full-year earnings guidance of $1.74 and $1.79 per diluted share from the prior quarter. The lower earnings guidance reflects headwinds from several factors, including volatile changes in the produce industry and various company incremental investments.

Kroger’s stock price declined $1.50 on weak earnings, representing a 6.59% nosedive from the previous close of $22.77.

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Disclosure:Ă‚ No position in Kroger.