Kroger Rings Up A Cautious Quarter

Kroger’s latest quarter showed that grocery demand is steady, but shoppers are still pinching pennies. The supermarket chain reported fiscal first-quarter sales of $46.1 billion, up from $45.1 billion a year earlier, while adjusted earnings rose to $1.58 per share from $1.49. Identical sales excluding fuel increased 1.0%, and shares fell about 8% Thursday, as investors focused on a consumer that is still looking cautious at checkout.

The numbers were solid enough, but not strong enough to make the margin math look like anything other than a disappointment. Gross margin slipped to 22.7% from 23.0% a year earlier, pressured by higher fuel sales, transportation costs, egg deflation, and planned price investments. That is the awkward part of the grocery business right now. Kroger has to keep prices sharp enough to protect traffic, but every discount meant to keep customers from wandering to Walmart, Costco, or Aldi also chips away at the profit aisle.

The outlook was steady, but not exactly a doorbuster. Kroger reaffirmed its full-year outlook, including identical sales excluding fuel growth of 1.0% to 2.0%, adjusted earnings of $5.10 to $5.30 per share, and free cash flow of $2.7 billion to $2.9 billion. That keeps the year on track, but it does not erase the bigger worry. Kroger is still profitable, still buying back stock, and still generating cash, but investors want to see shoppers come in for the full basket before they believe the grocery comeback is fully bagged.

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