Kroger is seeing strong demand for groceries during the coronavirus pandemic, but new pressure on profitability disappointed Wall Street. The company’s shares fell briefly Friday morning after it reported quarterly earnings before bouncing back to a slight increase.
Same-store sales excluding fuel—a key metric for retailers—rose 14.6% in the quarter, beating projections compiled by Consensus Metrix. The chain also said that full-year sales growth will exceed 13% while adjusted earnings will increase by as much as 50%.
Total company sales were $30.5 billion in the second quarter, compared to $28.2 billion for the same period last year. Excluding fuel, sales grew 13.9%. The company turned a profit of $820 million.
The results show the heightened demand for groceries amid the coronavirus pandemic—with consumers still stuck at home and many restaurants operating at less-than-full capacity—isn’t ending anytime soon. The question is which retailers will be able to fully capitalize while the boom lasts.
Kroger gave more details on its 2020 expectations Friday, saying adjusted earnings will range from $3.20 to $3.30 a share, well above the $2.86 expected by analysts. In June, the company made the unusual move of saying that it would surpass the full-year financial goals it gave before the pandemic hit, but it couldn’t say by how much it would outperform. That contrasted with most other retailers, who have thrown out their earlier guidance.
Kroger has gained some market share in the grocery sector versus rival Walmart Inc. as it’s able to sell more items at full price, without discounting, but that benefit might now be receding.
Kroger said its profit margins expanded in the quarter, but were pressured a bit due to lowering prices on some goods.
Kroger’s digital sales rose 127%, an acceleration from the first quarter’s rate. It’s testing a new subscription service for deliveries, where customers will pay $79 a year for unlimited orders. The move comes as Walmart unveils its new membership program, Walmart+, which looks to build on its lead in the online grocery market by offering free same-day delivery and perks like gas discounts.
The online grocery market is nearly five times larger than it was just a year ago, according to consultants Brick Meets Click and Mercatus, as consumers remain wary of entering stores.