Inflation and a slowing economy ars making U.S. shoppers, even the so-called “higher-income” consumers, look for more ways to save money, and that’s what helped grocery chain Kroger Co. beat fiscal fourth-quarter profit expectations, and provide a full-year outlook that was well above Wall Street forecasts.
“The gap between food-at-home and food-away-from-home spending grew in the fourth quarter, as more customers gravitated toward affordable meal solutions that restaurants simply can’t provide,” said Kroger Chief Executive Rodney McMullen on a post-earnings conference call, according to a FactSet transcript. “Our research shows that cooking at home is three-to-four times less expensive than dining out.”
The company said it has been focusing on improving its pricing relative to key competitors well before inflation starting climbing, and even before the start of the COVID-19 pandemic. Kroger said it has done so by “investment in pricing,” in each of the past 20 years, and by cutting costs by $1 billion for the past six years.
Part of that investment in pricing comes from the personalization of coupons which customers are using more and more.
“As customers looked for more ways to save, digital coupon engagement hit an all-time high during the year,” McMullen said. “Our combined paper and digital coupons helped save our customers more than $1.4 billion on products they need and want.”
Another way customers have been saving is by buying Kroger-branded products: “They can save 7% to 10% by buying Our Brands versus national brands,” McMullen said.
He said Kroger has seen an “especially strong response” from its “higher income households,” which grew by 1.1 million households in 2022.
Kroger’s stock
KR,
ran up as much as 7.5% intraday before paring gains to be up 3.8% in afternoon trading. The stock was one of the top-5 gainers among the S&P 500 index’s
SPX,
components.
The company reported before Thursday’s opening bell net income for the quarter to Jan. 28 that fell to $450 million, or 62 cents a share, from $566 million, or 75 cents a share, in the same period a year ago. But excluding non-recurring items, such as goodwill and impairment charges, adjusted earnings per share (EPS) rose to 99 cents from 91 cents to beat the FactSet consensus, or average analyst estimate compiled by FactSet, of 90 cents.
Sales rose 5.4% to $34.82 billion, which missed the FactSet consensus of $35.03 billion, while same-store sales growth of 6.2% beat expectations of a 4.9% rise.
And for fiscal 2023, Kroger said it expects adjusted EPS of $4.45 to $4.60, which was well above the FactSet consensus of $4.19.
Regarding the company’s proposed $24.6 billion purchase of Albertsons Companies Inc.
ACI,
CEO McMullen the merger remains on track to close in early 2024. He said the company was working to find potential buyers for the stores that he expects will have to be sold to obtain clearance from regulators.
“We are pleased with the level of interest received thus far and will work towards finding a solution that benefits all stakeholders,” McMullen said.
Kroger’s stock has lost 5.4% over the past three months, as the Consumer Staples Select Sector SPDR exchange-traded fund
XLP,
has dropped 6.6% and the S&P 500 has eased 3.1%.
