Kroger Co. (KR, Financial) released its first-quarter results before the opening bell on June 20.
By the numbers
The Cincinnati-based grocer posted adjusted earnings of 72 cents per share, down 1% from the year-ago quarter. Revenue stood at $37.25 billion, down from $37.53 billion.
Comparable store sales grew 1.5%, but was down from the year-ago period’s growth of 1.8%. Adjusted operating profit amounted to $957 million, down 6% year over year. Digital sales skyrocketed 42%.
The gross margin decreased 40 basis points to 22.2%, adjusting for fuel sales. The company attributed the drop to an industry-wide decline in pharmacy business margins.
Fierce competition
Kroger is currently struggling to compete against retail behemoths like Walmart (WMT, Financial) and Amazon.com (AMZN, Financial), who have gained substantial market share through low prices and improved quality.
To counter this, the company is working on a three-year transformational plan known as “Restock Kroger.” According to Chairman and CEO Rodney McMullen, the plan focuses on "redefining the grocery customer experience, improved upon by exciting partnerships that will create value."
Investments in online business
The company has also started investing in its digital business. Kroger recently tested autonomous deliveries in Texas and Arizona and plans to offer pickup or delivery services to all U.S. customers by the end of the year.
Kroger has also partnered with Microsoft (MSFT, Financial) to introduce digital shelf labels and explore the use of next-generation technology in its stores. While this plan hurt the company’s short-term profitability, it remains optimistic about deriving positive results in the future.
Guidance
Kroger issued guidance for full fiscal 2019.
The supermarket chain projects earnings per share between $2.15 and $2.25. Same-store sales are expected to grow by 2% to 2.25%. Kroger anticipates first-in, first-out operating profits to range from $2.9 billion to $3 billion. It projects capital spending, barring mergers, acquisitions and purchases of leased facilities, will come in at around $3 billion to $3.2 billion.
Disclosure: I do not hold any positions in the stocks mentioned.
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