Kroger’s upbeat annual profit view surprises Wall Street

1:10 pm Thursday, March 02nd, 2023

By Deborah Mary Sophia

(Reuters) – Kroger Co on Thursday reported bumper quarterly results and forecast annual profit above Wall Street estimates, as the U.S. grocer bets on higher food prices and embarks on cost-cutting measures across its digital business and supply chain.

The supermarket chain’s shares rose 3% as the outlook took Wall Street by surprise, after a string of profit warnings from major retailers including Walmart Inc and Target Corp raised concerns about the retail sector’s health in 2023.

Kroger has been streamlining its supply chain to limit costs, from sourcing products closer to its distribution centers to cutting expenses tied to digital orders through automation by partnering with British online supermarket Ocado Group.

Budget-conscious Americans have also fueled demand for Kroger’s private-label brands such as Simple Truth and Home Chef, which typically account for higher margins than their branded counterparts, with the company’s personal finance and media divisions further boosting earnings.

Kroger would invest $770 million more this year to raise hourly wages and improve healthcare benefits for its employees, Chief Executive Rodney McMullen said on an earnings call. It had over the past year raised its average hourly wage to $18. 

“Compared to the rest of the retail industry, Kroger’s outlook … was surprising to us because we would have expected Kroger to take extreme conservatism this year given the very volatile macro environment,” CFRA Research analyst Arun Sundaram said.

Meanwhile, the proposed $24.6 billion acquisition of Albertsons Cos Inc is under pressure from some U.S. lawmakers and consumer advocacy groups, but Kroger said it was on track to seal the deal in early 2024.

The company forecast adjusted per-share earnings between $4.45 and $4.60 for fiscal 2023, above Refinitiv estimates of $4.20.

Still, Kroger projected same-store sales growth below expectations for 2023, as it expects food inflation to ease in the back half of the year.

(Reporting by Deborah Sophia in Bengaluru; Editing by Anil D’Silva, Sriraj Kalluvila and Krishna Chandra Eluri)