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09/10/2021

Kroger private label slightly increases as same-store sales slightly dip in Q2

An update of its "Fresh for Everyone" campaign, and expansion of Simple Truth Plant Based and bulk orders highlight the second-quarter report.
Zachary Russell
Associate Editor
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Kroger reported a slight decline in same-store sales for the second quarter of this year, although sales showed a 14% bump on a two-year stacked basis. Private brands for the grocer maintained growth, however, and the retailer said it released 140 new store brand items during the quarter.

Kroger CEO Rodney McMullen said during the financial call that Kroger’s store brands grew overall in the quarter, citing “quality and innovation” of the products. By comparison, the grocer launched 253 new store brand items in Q1.

Highlights in the second quarter, per Kroger, was an expansion of its Simple Truth Plant Based line and "Big Pack" items, which are its larger bulk sizes of own brand products.

For the second quarter ending Aug. 14, Kroger reported total company sales were up $1.2 billion from the same period last year, including strong performance from Kroger’s private label brands, Simple Truth and Private Selection. The results come after Kroger released its 2021 ESG Report, noting future commitments to its workers, the environment, and supply chains.

Our strategic focus on leading with fresh and accelerating with digital continues to build momentum across our business,” said McMullen. “Kroger's seamless ecosystem is working. This was evident during the quarter as we saw customers seamlessly shift between channels, and we continued to see strong digital engagement. Customers are eating more food at home because it is more affordable, convenient, and healthier than other options.”

Digital again carried the quarter, as Kroger reported a 114% increase in digital sales on a two-year stacked basis. Total company sales were $31.7 billion in the second quarter, compared to $30.5 billion for the same period last year. Excluding fuel, sales decreased 0.4% compared to the same period last year.

Identical sales without fuel decreased .6% for the quarter but increased 14% on a two-year stacked basis.

Gross margin was 21.4% of sales for the second quarter. The FIFO gross margin rate, excluding fuel, decreased 60 basis points compared to the same period last year. Kroger said the decrease was primarily related to continued price investments, and higher shrink and supply chain costs, partially offset by sourcing benefits and growth in the alternative profit business.

The LIFO charge for the quarter was $47 million, compared to a LIFO charge of $23 million for the same period last year, attributable to inflation in fresh categories.

The Operating, General & Administrative rate decreased 76 basis points, excluding fuel and adjustment items, which reflects decreased COVID-19 related costs and the execution of cost savings initiatives.

Kroger said that it continues to generate strong free cash flow and remains committed to investing in the business to drive long-term sustainable net earnings growth, maintaining its current investment grade debt rating, and returning excess free cash flow to shareholders via share repurchase and a growing dividend over time.

“Kroger's strong execution resulted in identical sales above our internal expectations for the second quarter, and we continued to remove costs from the business,” said Kroger CFO Gary Millerchip. “Driven by the momentum in our results and sustained food at home trends, we are raising our full-year guidance. We now expect our two-year identical sales stack to be in the range of 12.6% to 13.1%. We expect our adjusted net earnings per diluted share to be in the range of $3.25 to $3.35.”

Kroger also highlighted in the quarter its updated "Fresh for Everyone" campaign, including new animated "Kroji" characters as they're referred to by the retailer, a mix of emoji and Kroger.