Kroger Q2 profit falls on price cuts as same-store sales rise

Aggressive price cuts took a toll on the nation's largest grocery store operator in its second quarter.



Kroger Co.'s net income fell to $353 million, or 39 cents per share, in the quarter ended Aug. 12, from $383 million, or 40 cents per share, in the year-ago period. Its results were in line with the Street estimates. Gross margins fell by 30 basis points.



Kroger has been cutting prices in the wake of increased competition from online competitors, Walmart and such deep-discount players as Aldi. Neil Saunders, managing director of GlobalData Retail, called such cuts a "necessary evil" if Kroger is to maintain its competitiveness and dominance in the sector. The good news, he added, is that the strategy appears to be paying off in terms of sales.



Kroger's revenue rose 3.9% to $27.6 billion from $26.6 billion last year, topping analysts' estimate of $27.5 billion. Same-store sales edged up 0.7% after two consecutive quarters of declines, better than the expected 0.4% growth.



"We returned to positive identical supermarket sales growth in the second quarter," said chairman and CEO Rodney McMullen. "We had strong growth in both loyal and total households. Traffic is up, unit movement is up, market share is up, and our customers' price perception is excellent and continues to improve."



Kroger confirmed its 2017 net earnings guidance for 53 weeks of $1.74-$1.79 per diluted share. It expects same-store sales to rise 0.5% to 1% excluding fuel. But the company said its expectations do not include any impact from hurricanes Harvey and Irma.

"As our business continues to improve, we remain committed to delivering on our guidance in 2017 and believe we have the ability to grow identical supermarket sales and market share in 2018," McMullen said.