Kroger's 4th-Quarter Results Beat Expectations on Robust Private-Label Growth
Kroger Co. (NYSE:KR) released its fourth-quarter results on March 5, 2020 before the opening bell.
The company surpassed expectations for both earnings and revenue courtesy of robust performance of private label products. Strong digital sales aided the company's overall results in the quarter.
Earnings highlights
The U.S. supermarket chain posted adjusted earnings of 57 cents per share, which was ahead of expectations of 55 cents. Revenue of $28.9 billion was up from $28.3 billion reported in the prior-year quarter, which was in line with projections.
Comparable store sales, barring fuel, surged 2%, just shy of expectations of 2.1% growth. Digital sales skyrocketed 22%.
The gross margin decreased 30 basis points to 22.1%, adjusting for fuel sales. The company attributed the drop to an industry-wide decline in pharmacy business margins.
Efforts to combat competition
The company is up against retail behemoths like Wal-mart (NYSE:WMT) and Amazon (NASDAQ:AMZN), who have gained substantial market share by virtue of low price and improved quality.
In order to step up its game, Kroger is working on a transformational plan known as "Kroger Restock," which consists of investments in its omnichannel platform, recognizing different lucrative streams with high margins and reduction of expenses. As part of the program, the company is scaling up its store base, rolling out new items and launching digital coupons. In addition, the company has been growing its private-label items portfolio. Kroger's chairman and CEO Rodney McMullen commented:
"By executing against the Restock Kroger framework, we are repositioning our business by widening and deepening our competitive moats. The four main areas of the Restock Kroger framework - Redefine the Customer Experience, Partner to Create Value, Develop Talent and Live Our Purpose - continue to be a top strategic priority for us."
Private-label growth
The grocer's private-label products thrived in 2019. This is evident from the fact that Kroger's "Our Brands" private label experienced its best year ever in 2019 as sales were more than $23.1 billion. In 2019, the company launched as many as 758 new Our Brands products, which helped drive sales growth as compared to 2018.
Financial forecast
Kroger issued guidace for full year 2020. The supermarket chain projects earnings per share between $2.30 and $2.40. Same-store sales are expected to grow by 2.25%.
Disclosure: I do not hold any posiitons in the stocks mentioned.
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