Kroger improves earnings outlook as focus shifts to essentials By Reuters

© Reuters. FILE PHOTO: An undated photo shows Kroger grocery delivery bags in the United States obtained by Reuters on June 15, 2022. Kroger/Handout via REUTERS/File Photo

By Praveen Paramasivam

(Reuters) – Kroger Co raised its profit expectations for the year on Thursday, the latest retailer to defy the inflation-linked crisis gripping Corporate America by focusing on the essentials.

Major retailers, including Walmart (NYSE:) and Target (NYSE:) have sounded the alarm in recent weeks over the effects of inflation on US shoppers, stoking fears that the economy is heading into a recession.

But with people prioritizing spending on groceries and basic necessities — a typical shift during downturns — dollar stores Costco Wholesale Corp (NASDAQ:) and Kroger (NYSE:) have done relatively well. weathered the inflationary storm.

Kroger raised its 2022 earnings per share forecast by 10 cents to between $3.85 and $3.95, above market estimates of $3.85, according to Refinitiv data. First-quarter earnings of $1.45 per share were also 15 cents above expectations.

Same-store sales of its house brands rose 6.3% in the quarter as consumers snubbed branded juices and ready meals for cheaper store-owned counterparts.

“Customers are starting to buy our (private label) brands aggressively,” said general manager Rodney McMullen, adding that more than 90% of customers have purchased a product from a store-owned brand.

“When the economy is tight, our brands always gain market share.”

Overall same-store sales excluding motor fuel increased 4.1%, slightly behind estimates of 4.2%, due to weak sales of general merchandise such as apparel, home furnishings and the toys.

After gross margins fell 1% to 21.6%, Kroger said it expects margins to remain under pressure this year as supply chain spending and rebates offset benefits of its $1 billion cost reduction plan through automation and technology.

The company expects same-store sales growth in 2022 to be between 2.5% and 3.5%, well below expectations of 3.2%.

“Overall, the results were good, but for a stock where many are hiding in this inflationary environment, we don’t think it was strong enough,” Citi analyst Paul Lejuez wrote in a note.

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