CINCINNATI — Which consumer habits will persist beyond the pandemic? Which pre-pandemic habits will resume? Executives of the Kroger Co. are looking at data to chart its course forward.
W. Rodney McMullen, chairman and chief executive officer, said more than half of customers of the nation’s largest supermarket chain expect a return to normal by July. As such, larger gatherings for the summer holidays may be in store.
“We are also seeing customers shop more frequently as COVID restrictions ease,” McMullen said during a June 17 earnings call. “Importantly, we saw a continuation of several pandemic trends. This includes heightened digital engagement across demographics; expanded consumption in key fresh areas like meat, produce and natural foods; and trading up to more premium products.
“New trends are emerging as well as customers settle into new routines. In a recent survey of our customers, a remarkable 92% of the people say they enjoy cooking the same or more than they did pre-COVID. And as people's busy social lives pick up, more customers are looking for convenience in cooking options. We continue to utilize our data to understand those behaviors that are more permanent in nature. Whether customer habits are returning, hardening or emerging, we will continue to meet the customer where they are and use our data science expertise to be where they are going.”
Shopper interest in premium products has benefited Kroger’s Our Brands business, in particular its higher-margin Private Selection and Simple Truth brands. Both are outperforming the retailer’s overall sales growth, said Gary Millerchip, chief financial officer. Owning manufacturing for its store brands is a competitive advantage, McMullen added.
“Last year because we had our own manufacturing plants and we were able to ramp up production and it was dedicated to us, we were able to significantly gain share last year just because we had product and many of our CPG partners did not,” McMullen said.
The strength of Kroger’s Our Brands may help the retailer operate successfully in an inflationary environment.
“If we have inflation that is not driven by true cost changes, what always happens is Our Brands gain significant share at the expense of some of those national brand players,” McMullen said.
Net earnings attributable to The Kroger Co. for the first quarter ended May 22 totaled $140 million, equal to 18¢ per share on the common stock, a sharp decline from $1.2 billion, or $1.53 per share, in the year-ago quarter. Kroger recorded higher operating expenses, loss on investments, pension plan withdrawal liabilities and transformation costs that negatively impacted reported earnings in the latest period. Adjusted earnings were $918 million, down from $972 million in the year-ago quarter.
“While year-over-year comparisons are impacted by the pandemic, as well by the dramatic change in customer behavior we saw in quarter one last year due to COVID-19, looking over a two-year time horizon, our adjusted EPS of $1.19 represents a compounded annual growth rate of 28.6% versus 2019,” Millerchip said.
Quarterly sales declined to $41.3 billion from $41.5 billion the year before, as the company cycled the period of panic-buying early in the pandemic.
Identical sales without fuel decreased 4.1% from the prior year but advanced nearly 15% on a two-year basis. Digital sales increased 16% over the year-ago period and 108% on a two-year basis.
The company also tracked strong growth in alternative profits and significant progress with cost-savings initiatives, McMullen said.
“Looking forward to the rest of 2021, while there remain uncertainties regarding what will emerge as the new normal in food at home trends, based on our strong results to date and confidence in our ability to execute our strategy, we are increasing our full-year 2021 guidance,” Millerchip said. “We now expect identical sales for the year to be between negative 4% and negative 2.5%, which represents a two-year stack of 10.1% to 11.6%. We also expect full-year adjusted net earnings per diluted share to be in the range of $2.95 to $3.10, representing a two-year compounded annual growth rate of 16% to 19%.”
Shares of The Kroger Co. trading on the New York Stock Exchange were up more than 5% on June 17 from the previous close of $37.55.