Kroger saying goodbye to Lucky’s; Q3 misses despite sales growth

The Kroger Co. is divesting the natural and organic food chain that it has helped grow during the past two years.

The nation’s largest supermarket chain on Thursday said it has decided to sell its stake in Lucky's Market following a review of its portfolio. The divestiture led to a non-cash impairment charge of $238 million in the third quarter.

Kroger invested in the Colorado-based, value-priced Lucky’s in April 2016. At the time, it had 17 stores. The store count has since grown to 39 locations.

“The amount of investment that it would take for Lucky’s to be a meaningful contributor to Kroger overall and the efforts that it would take, we just didn’t think it created a good return for the investments,” Kroger CEO Rodney McMullen said on the company’s post-earnings call.

The news about Lucky was included in Kroger’s third-quarter earnings report, which offered mixed results. Net income totaled $263 million, or $0.32 a share, in the quarter, down from $317 million, or $0.39 a share, in the year-ago period. Adjusted per-share earnings came to $0.47, missing the $0.49 analysts had expected.

Sales rose to $27.97 billion from $27.83 billion, below the expected $28.16 billion. Same-store sales rose 2.5%. 

Digital sales in the quarter rose 21%, compared with the 31% increase in the second quarter. Kroger has made significant investments in its digital operations and technology overall as part of its ‘Restock Kroger’ program to grow online sales, improve delivery and modernize stores.

In a statement, McMullen noted that Kroger’s 2.5% identical-sales rise was the strongest since the launch the Restock Kroger program, which was launched in fall 2017. 

“Kroger's customer obsession and focus on operational excellence continued to generate positive results in the third quarter,” stated McMullen. “Identical sales were the strongest since we started Restock Kroger and gross margin rate, excluding fuel and pharmacy, improved slightly in the quarter. At the same time, we continued to reduce costs as a percentage of sales. Kroger continues to generate strong and durable free cash flow as reflected by the fact that the company has reduced debt by $1.5 billion over the prior four quarters and continues to increase its dividend to create shareholder value.”