Kroger Co. sales for practically flat sales for the fiscal quarter, but improved earnings from identical stores and adjusted earnings per share topped Wall Street's forecast.
And in a conference call with analysts Thursday, Chairman and Chief Executive Rodney McMullen said Kroger does not expect to reach its $ 400 million three-year target in incremental operating profit by 2020, part of the company's Restock Kroger strategic plan. The news sent shares down in the morning before returning to afternoon trading.
For the quarter ended August 17, Krogers reported sales of $ 28.1
Operating profit increased by 1.8% to $ 559 million. Kroger reported a $ 30 million LIFO charge in the quarter versus $ 12 million in the same period last year, driven by higher-than-expected inflation in dry groceries, pharmacies and dairies.
"Kroger delivered our best identical sales results since the launch of our transformation plan, led by our customer management team. Our in-house customer actions are improving even faster than our identical sales growth, "McMullen (left) told analysts of the call.
" We continue to make significant investments to redefine grocery customer experience. We build a platform of seamless experiences to serve customers what they want, anytime they want and anywhere. We know that seamless experience is important to the customer experience both today and tomorrow, and that is why we continue to invest heavily in our capabilities in this area, ”he explained. “Kroger's digital sales grew by a solid 31% in the second quarter. Sales of pickup and delivery continued to perform in the mid 30% during the quarter. Going forward, we expect our digital sales growth to moderate year over year, mainly due to the bicycle of Home Chef and as a result of our disciplined focus on increasing [Kroger] the ship customer over other digital offerings such as Vitacost. ” During the second quarter, Kroger expanded to 1,780 online stores for groceries and 2,255 delivery locations, covering more than 95% of households in the company's market areas.
"It is important that we begin to improve operating performance trends in our digital business," McMullen pointed out in the interview. "Our digital business is becoming less headwind, which is an important inflection point as we continue to invest in new capabilities to support our However, I would note that this is still a significant investment for the company. "
Sales in Kroger's private label portfolio, or" Our Brands, "increased 3.1% year over year. 203 new Our Brands items in the quarter.
"Retail and unit sales growth led to the highest share in the second quarter of our Brands history," McMullen said. "And the new items delivered more than $ 137 million in sales in during the second quarter, which further strengthened our supermarket business, "he added.
CFO Gary Millerchip (left) said in the call that important beverage categories, raw materials and natural foods "over-competed" in the second quarter, which also boosted the top line in pharmacy business and a mid-single-digit increase in prescription costs.
"Overall, we are excited about sales growth this quarter, and we will continue to work to build on this momentum in the second half," Millerchip said.
Recently, Kroger reported second quarter net income of $ 297 million, or $ 0.37 per diluted share, compared to $ 508 million, or $ 0.62 per diluted share, in the prior period. Excluding the effect of adjustments for pension plans, changes in the market value of Ocado securities and the sale of convenience stores, the adjusted result was $ 357 million, or SEK 44 per diluted share, for the 2019 quarter against $ 336 million, or 41 cents per diluted share in 2018 quarter.
Analysts on average adjusted EPS of 41 cents, with estimates ranging from 31 cents to 46 cents, according to Refinitiv / Thomson Reuters.
For the first half of 2019, sales dipped 0.5% from the previous year to $ 65.42 billion. Sales of identical stores increased by 1.8%, the same growth as in the first half of 2018. Net income was $ 1.07 billion, or $ 1.31 per diluted share, compared to $ 2.53 billion, or $ 3.03 per diluted share, the year before. Adjusted earnings were $ 943 million, or $ 1.16 per diluted share, versus $ 962 million or $ 1.15 per diluted share in the prior year.
McMullen and Millerchip said Kroger is on its way to delivering $ 100 million in fiscal 2019 operating profit, driven by alternative revenue streams, namely the media and personal finance.
"We want to be clear on today's call that we do not confirm the three-year, $ 400 million increase in projected operating profit," McMullen told analysts.  Looking ahead, Kroger now forecasts fiscal 2019 GAAP EPS of $ 2.30 to $ 2.40, compared to its previous guidance of $ 2.38 to $ 2.48. The company confirmed its adjusted EPS outlook of $ 2.15 to $ 2.25.
Wall Street & # 39; s consensus estimate is for full-year EPS of $ 2.17, with estimates ranging from $ 2.00 to $ 2.25, according to Refinitive / Thomson Reuters.
McMullen said in the analyst's call that several of the details behind Kroger's guidance will be shared at the Cincinnati-based company's annual Investor Day in November.
“Transformation is incredibly difficult, and that's the journey we're on with Restock Kroger. When we reflect on this journey, we want to be transparent about what went according to plan and what did not go as expected, "he said.
" During a three-year plan in today's retail environment, there are many sets and takes. That said, I would like to reiterate that Kroger is concerned about FIFO's operating profit growth in 2020 over 2019 confirmed guidance, "McMullen added. "The Restock Kroger transformation journey sets the company up for long-term growth and looks ahead, and the benefits we have seen so far have helped Kroger in our transformation from grocery to growth business. We have the right overall strategy and framework for this business and look forward to telling you more about the one in November. "
Kroger closed the second quarter of 2019 with 2,759 grocery stores overall, compared to 2769 a year ago. Store banners include Kroger, Ralphs, Dillons, Smith & # 39; s, King Soopers, Fry & # 39; , QFC, City Market, Owen & # 39; s, Jay C, Pay Less, Baker & # 39; s, Gerbes, Harris Teeter, Pick & Save, Copps, Metro Market, Mariano & # 39; s, Fred Meyer , Food 4 Less and Foods Co., among others.