Kroger is hit by higher costs offsetting larger food baskets

Customers shop in the produce section of a Kroger Market in Versailles, Kentucky, USA, on Tuesday, November 24, 2020.

Scotty Perry | Bloomberg | Getty Images

Kroger said Friday that buyers have filled large food baskets in the second fiscal quarter. They bought larger items, such as 24 packs of toilet paper. And they replaced refrigerators often while cooking more meals at home.

Sales at the company’s same stores, a key metric of the industry, fell 0.6% over the three-month period – almost corresponding to the high level of food sales over the period a year ago. He raised his prospects for the rest of the year.

However, shares of Kroger – the country’s largest supermarket operator – fell about 7% on Friday as investors worried about a less favorable trend: Reducing profits and squeezing margins.

CEO Rodney McMullen said on a earnings call that “home food trends remain sticky.” He said sales have grown year-on-year in the produce, flower, delicatessen and bakery departments, even when it was against challenging comparisons.

But the company is under pressure from higher supply chain costs, rising levels of theft and rising food prices, according to Kroger Chief Financial Officer Gary Millerchip. He said the shop would have to pay more for transportation and store space. He said it will continue in the second half of the year.

In addition, the store faces inflation. Like other retailers, Kroger has had to discuss when to raise prices for customers or when to cut the cost.

Millerchip said the store has discounted the products selectively to attract shoppers.

In a research note, JP Morgan analyst Ken Goldman questioned that approach. He said Kroger should pass on more of these costs to customers who are used to seeing higher prices everywhere and who have shown that they are not scared of them.

In addition, Goldman said, the price of Kroger shares may be due for a selloff. It has already grown significantly during the pandemic and hit a record $ 47.99 last week. Shares are up about 34% this year.

McMullen said inflation has had at least a silver lining for retailers: As shoppers see an increase in the price of certain packaged goods for consumers, some buy snacks, food or similar beverages from private labels. of Kroger.

Kroger expects to earn $ 3.25 to $ 3.35 per share, after adjustments, in fiscal 2021, in addition to a previous forecast of $ 2.95 to $ 3.10 per share. In the last quarter, Kroger earned $ 467 million, or 61 cents per share, on revenue of $ 31.68 billion. Add commitment of 80 cents a part above the estimates.

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