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Kroger touts fresh, digital growth in Q2 2022 report

Kroger, the nation’s largest grocer, and NVIDIA will build a state-of-art AI lab and demonstration center to expand Kroger’s freshness initiatives, improve shipping logistics and create a better shopping experience in stores through digital twin simulations — virtual models designed to accurately reflect store layouts and other operations.

Second Quarter Highlights
• Identical Sales without fuel increased 5.8%
• Operating Profit of $954 million; Adjusted FIFO Operating Profit of $1,110 million
• EPS of $1.00; Adjusted EPS of $0.90
• Company is executing its go-to-market strategy to deliver value for customers
° Our Brands identical sales increased 10.2%
° Digital sales grew 8%
° Accelerated our Fresh Produce Initiative with 864 stores now certified, driving higher identical sales

CINCINNATI, Sept. 9, 2022 /PRNewswire/ — The Kroger Co. BB #:100073 today reported its second quarter 2022 results and will update investors on how Leading with Fresh and Accelerating with Digital continues to position Kroger for long-term sustainable growth.

Comments from Chairman and CEO Rodney McMullen
“Kroger delivered strong second quarter results propelled by our Leading with Fresh and Accelerating with Digital strategy. We are incredibly thankful for our dedicated associates who continue to deliver a full, fresh and friendly customer experience.

Our consistent performance underscores the resiliency and flexibility of our business model, which enables Kroger to thrive in many different operating environments. We are applying technology and innovation to improve freshness, grow Our Brands, and create a seamless shopping experience so our customers can get what they want, when and how they want it, with zero compromise on quality, selection and affordability.

We will continue to focus on providing affordable, fresh food to our customers, investing in wages and the associate experience, and creating zero hunger, zero waste communities because when we do those things well, we deliver attractive and sustainable shareholder returns.”

Total company sales were $34.6 billion in the second quarter, compared to $31.7 billion for the same period last year. Excluding fuel, sales increased 5.2% compared to the same period last year.

Gross margin was 20.9% of sales for the second quarter. The FIFO gross margin rate, excluding fuel, increased 2 basis points compared to the same period last year. This result reflected our ability to effectively manage product cost inflation through strong sourcing practices while helping customers manage their budgets and keeping prices competitive.

The LIFO charge for the quarter was $148 million, compared to a LIFO charge of $47 million for the same period last year driven by higher product cost inflation primarily in grocery.

The Operating, General & Administrative rate increased 36 basis points, excluding fuel and adjustment items, compared to the same period last year. The increase in OG&A rate was driven by investments in associates, higher incentive plan costs, and strategic investments in various margin expansion initiatives that will drive future growth, partially offset by sales leverage and continued execution of cost savings initiatives.

Capital Allocation Strategy
Kroger continues to generate strong free cash flow and remains committed to investing in its business to drive long-term sustainable net earnings growth, maintaining its current investment grade debt rating, and returning excess free cash flow to shareholders via share repurchases and a growing dividend over time.

Kroger’s net total debt to adjusted EBITDA ratio is 1.63, compared to 1.78 a year ago (Table 5). The company’s net total debt to adjusted EBITDA ratio target range is 2.30 to 2.50.

Comments from CFO Gary Millerchip

“Our second quarter results provide another proof point that Kroger has the right go-to-market strategy. Our consistent execution of this strategy is building momentum in our business which, combined with sustained food at home trends, gives us the confidence to raise our full-year guidance. We now expect identical sales without fuel to be in the range of 4.0% to 4.5% and adjusted net earnings per diluted share in the range of $3.95 to $4.05.

Our business model has proven to be resilient in a variety of operating and economic environments and we remain confident in our ability to deliver attractive and sustainable total shareholder returns of 8-11% over time.”

Second Quarter 2022 Highlights

Leading with Fresh

  • Expanded Our Brands portfolio with the launch of the Smart Way product line, part of Kroger’s new opening price point strategy
  • Recognized by Store Brands Magazine for the quality of Our Brands products with 12 Editors’ Picks awards for best new products in 2022
  • Introduced 170 new Our Brands items, including the expansion of our industry-leading Simple Truth plant-based line and seasonal fresh favorites
  • Celebrated five awards earned by Murray’s Cheese varieties at the American Cheese Society Competition

Accelerating with Digital

  • Improved delivery sales by 34% over last year driven by Kroger Boost and Customer Fulfillment Centers
  • Announced a new Kroger Delivery Customer Fulfillment Center in the Denver Metro area, one of the fastest-growing areas in the country
  • Opened a new Kroger Delivery Customer Fulfillment Center in Romulus, Michigan, supporting customers in several geographies, including Michigan, Northern Ohio, and Indiana
  • Expanded the Kroger Delivery network by opening seven new spoke facilities, which serve as last-mile cross-dock locations, including Louisville, Nashville, and Chicago in existing geographies, as well as Austin, Birmingham, Oklahoma City, and San Antonio in new geographies

About Kroger
At The Kroger Co. ( NYSE: KR), we are dedicated to our Purpose: to Feed the Human Spirit. We are, across our family of companies nearly half a million associates who serve over eleven million customers daily through a seamless digital shopping experience and retail food stores under a variety of banner names, serving America through food inspiration and uplift, and creating #ZeroHungerZeroWaste communities by 2025. To learn more about us, visit our newsroom and investor relations site.