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Kroger's sales increase after digital investments



Kroger
Co.

reported slightly higher sales in the last quarter thanks to investments to pull in new customers that are also weighing on profits.

The increase to $ 28.2 billion in sales from $ 28 billion the year before reversed three consecutive quarters. The grocer's preferred calculation for sales, in stores with at least 15 months, excluding fuel, rose 2.2%.

Managing Director

Rodney McMullen

said in a conversation with analysts that higher sales showed that Kroger's investments in its digital business and new product lines were paying off.

"We got the job done for us," he said. "We are encouraged by that challenge."

Kroger's shares increased below 1

% at midday Thursday to $ 25.77.

The nation's largest supermarket chain is trying to keep its foot in the rapidly changing grocery industry. Like other food retailers, Kroger faces pressure to keep prices low as it invests in delivery to compete better against

Amazon.com
Inc.

and

Walmart
Inc.,

the country's largest grocery seller.

Walmart and

Target
Corp

had higher sales in recent quarters as a result of investments that have boosted digital sales. Discounter

Convenience Store Holding
Corp

, which went public in June, unveiled ambitious plans to increase the number of stores by 10% annually. Organic grocer

Sprouts Farmers Market
Inc.

recently lowered guidance for the entire year while growth continues to slow.

Kroger is in the middle of a three-year plan to revive the business with investments in technology and new employees. The 136-year-old company has added clothing and financial services to its sales strategy, as well as new groceries such as store-branded meatless burger cakes.

Cincinnati-based Kroger has expanded pickup and home delivery to several stores and has opened automated warehouses for delivery as part of its collaboration with the UK retailer

Ocado Group

PLC.

Digital sales growth in the last quarter declined to 31% from more than 50% a year ago as delivery and retrieval services matured.

The owner of Fred Meyer, Ralphs and Harris Teeter stores has said that investments should generate $ 4 billion in free cash flow through cost savings and better sales.

While sales improved, gross margins for the quarter fell amid lagging profitability from Kroger's pharmacy. Kroger said it still expects profit growth in 2019, but withdrew its previous guidance on operating income of $ 400 million by 2020.

Kroger maintained its guidance for same-store sales growth of 2% to 2.25% and adjusted earnings of $ 2.15 to $ 2.25 per share for 2019.

Write to Jaewon Kang at jaewon.kang@wsj.com

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