Kroger Q4 delivers on strong private-label growth; CEO comments on COVID-19

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Kroger Q4 delivers on strong private-label growth; CEO comments on COVID-19

By Marianne Wilson - 03/05/2020
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Kroger Co. beat fourth-quarter earnings and sales estimates amid rising demand for its growing assortment of private-label items. 

In remarks to analysts, Kroger chairman, and CEO Rodney McMullin said, from a financial standpoint, it is too early to tell the effect of the coronavirus on the chain’s business.  

“It is not included in our guidance and, while it is obviously very early for this public health event in the United States, we are not seeing anything so far that would cause us to change our guidance,” McMullin said. “From a business preparedness standpoint, we have established an internal task force that has activated our pandemic preparedness plan with a focus on our customers, associates, and supply chain. We generally believe that we will have limited supply chain exposure in China as the majority of the product we source is domestic. “

The nation’s largest supermarket chain reported that its net income rose 26% to $327 million, or 40 cents per share, up from $259 million, or 32 cents per share, in the year-ago period. Adjusted earnings per share were 57 cents, just ahead of analysts’ estimates for 55 cents per share.

Sales increased to $28.9 billion from $28.3 billion last year and were in line with expectations. Digital sales were up 22%. Same-store store sales without fuel rose 2%. 

Total company sales were $122.3 billion in 2019. Excluding fuel, dispositions and merger transactions, total sales grew 2.3%. Adjusted full-year earnings per share were $2.19.

As part of its ongoing "Restock Kroger" program, the grocer has been increasing its selection of private-label products and enhancing its digital operations. Kroger’s "Our Brands" private label had its best year ever in 2019, exceeding $23.1 billion in sales. The company said that it introduced 758 new Our Brands items in 2019, which helped drive strong year-over-year sales lift across its portfolio of brands. 

Kroger achieved more than $1 billion in cost savings in 2019, on top of the $1 billion of savings in 2018. 

“We also have clear line of sight to $1 billion of incremental savings in 2020,” stated CFO Gary MillerchipQ$. “These savings are being achieved through improved productivity and automation, elimination of waste, improved sourcing of goods for sale and goods not for resale, and administrative efficiencies.

Kroger reaffirmed its 2020 guidance for earnings per share of $2.30 to $2.40 and same-store sales growth of 2.25%. Analysts forecast earnings per share of $2.33 and same-store sales growth of 2.1%. 

“By executing against the Restock Kroger framework, we are repositioning our business by widening and deepening our competitive moats,” stated McMullin. “The four main areas of the Restock Kroger framework – Redefine the Customer Experience, Partner to Create Value, Develop Talent and Live Our Purpose – continue to be a top strategic priority for us.”

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