Kroger Co., the nationâs largest pure play supermarket chain, is on a roll. Following a stellar second quarter in which identical store sales grew 4.8 percent (excluding fuel), the Cincinnati, OH based merchant topped that mark, increasing IDs 5.6 percent in its third quarter, which ended November 8. That marked the 44th consecutive quarter with positive identical store revenue.
Earnings jumped 21 percent to $362 million on sales of $24.9 billion, an 11.2 percent gain over last yearâs corresponding period.
âOur associates continue to execute our âCustomer 1stâ strategy, which is building loyalty beyond the weekly ad and showing yet again that focusing on our customers creates value for our shareholders,â said Rodney McMullen, Krogerâs chief executive officer. âOur financial results were driven by strong sales and core business performance, and helped by higher fuel margins in the third quarter.â
In the follow-up conference call with the analysts, Kroger officials remained bullish about its future, predicting that ID sales will continue to grow with the 5-6 percent range in the next quarter and noted that if fuel prices rise, the retailer projected an 8-11 percent profit gain in fiscal 2015.
On its Harris Teeter acquisition, which was finalized 11 months ago, McMullen noted: âThe Harris Teeter team has done a nice job running their own business, but the other thing is theyâve been incredibly helpful helping teach all of Kroger some ideas as well. So itâs been great so far, and the synergies are moving along as we expected as well.â
Chief financial officer Mike Schlotman added: âI would characterize Harris Teeter as performing how we expected them to perform. Theyâve not been shy about advertising it. Weâve made the price investments in their business that we expected to make during the year. The customers are responding to those price investments, and I would characterize Harris Teeter as right on track with what our expectations would be relative to our overall guidance for the year.â
On Krogerâs Marketplaces (its large format combination stores), Mike Ellis, Krogerâs president and COO, noted: âWe are obviously very excited about the marketplace stores and the use of all our formats together. Itâs one of the reasons why a couple years ago we committed to increase our capital investment by $200 million a year and we continue to do that. We think thatâs a good amount to accelerate capital by in terms of the ability to operate the store at the level that you saw and balance in terms of the use of the cash flow. As long as â as we continue to get the performance from those stores as we expect, youâll see us to continue accelerating that capital investment. But that was the reason why in October of 2012 we outlined the need to increase the capital by $200 million a year.
On private label, Schlotman noted that corporate brands made up 25.8 percent of Krogerâs sales in the quarter.
On the growth of natural and organic products, Schlotman added: âWe had strong sales growth and double-digit growth, natural organics and if you go back to our Simple Truth brand, weâll hit a billion dollars this year and weâre really proud of that and what itâs contributing.â
In response to an analystâs question, McMullen said that Kroger is seeing great strength and momentum at the start of the fourth quarter which included the Thanksgiving holiday. âSo far, we would be at the top end of the range. Itâs broad-based in all departments, so itâs across the whole store, so we feel really good. The thing that makes it a little more complicated is weâre just now starting to cycle some of the weather from a year ago.â
More regionally, the company opened two new stores in the Mid-Atlantic. Harris Teeter opened a 50,000 square foot unit on the site of the old Washington Navy Yard (401 M Street SE) last month and Kroger cut the ribbon on its second Tidewater Marketplace unit in Suffolk, VA on December 3. That 123,000 square foot unit includes approximately 30,000 square feet of non-grocery items including jewelry, toys and apparel.
