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09/09/2022

Store Brands Drive Kroger Q2 Results

Double-digit increase in sales of private label products a key factor in the grocer's strong growth in the second quarter.
Gina Acosta
Managing Editor
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Kroger ravioli
Kroger continues to expand its assortment of private label products.

Kroger is proving that its business model offers a way to thrive even in the face of a variety of challenging operating environments.

The grocery retail behemoth reported another set of impressive earnings on Sept. 9 despite historic inflation and some shoppers defecting from the traditional grocery channel to food discounters.

During a second quarter earnings call, Kroger CEO Rodney McMullen said the grocer is seeing record engagement with digital coupons, fuel rewards and private brands. McMullen said Kroger saw 750 million downloads of digital coupons during Q2, representing about $1 billion in savings for shoppers. 

During the period ended Aug. 13, same-store sales without fuel increased 5.8% at Kroger. Total company sales were $34.6 billion in the second quarter, compared to $31.7 billion for the same period last year. Excluding fuel, sales increased 5.2% compared to the same period last year.

Operating profit increased 13.7% to $954 million. Kroger said adjusted earnings came in at 90 cents per share, up 12.5% from the same period last year. 

Looking ahead to fiscal 2023, which ends next February, Kroger said it sees full year earnings in the range of $3.95 to $4.05 per share, a 10 cent improvement from its prior guidance in June.

"Our second quarter results provide another proof point that Kroger has the right go-to-market strategy," said Kroger CFO Gary Millerchip. "Our consistent execution of this strategy is building momentum in our business which, combined with sustained food at home trends, gives us the confidence to raise our full-year guidance."

Kroger said that its private brand sales were up 10.2% in the second quarter, led by record growth of its namesake Kroger brand and Home Chef brand (Kroger acquired Home Chef in 2018 for $200 million). 

And this week Kroger doubled down on offering inflation-battered shoppers more ways to save.

The retailer expanded its Our Brands portfolio with the launch of a Smart Way product line, part of Kroger's new opening price point strategy. The line brings together 16 legacy brands into a single, easy-to-find identity.

"As our customers face an ongoing inflationary environment, we know they are looking to stretch their dollars further than ever before," said Stuart Aitken, Kroger's senior vice president and chief merchant and marketing officer. "Smart Way is an exciting, eye-pleasing product line that will be easy for customers to find. By adding a simplified opening price point brand strategy to Our Brands portfolio, we will further cater to every customer, every time."

Smart Way joins Kroger's curated and extensive Our Brands portfolio, which includes the Kroger brand, Simple Truth, Private Selection, Home Chef and Heritage Farm among others.

Consolidating a number of legacy brands will ensure customers searching for opening price point items will be able to easily find what they are looking for on the shelves, the company says.

"We are confident Smart Way will have something for everyone," said Juan De Paoli, vice president, Our Brands for Kroger. "From canned vegetables and bread to juices and staples, this new product line features the products families need to put an even more affordable meal on their table."

Customers can shop approximately 150 Smart Way products on shelves nationwide today, with additional items available this fall.

During the second quarter, the retailer also introduced 170 new Our Brands items, including the expansion of its Simple Truth plant-based line and seasonal fresh favorites.

In Q2, Kroger's digital sales increased 8%. The company says it has improved delivery sales by 34% over the last year driven by its Kroger Boost loyalty program (McMullen says the Boost program is helping drive increased household spend) and its robotic Customer Fulfillment Centers.

The company recently announced a new Kroger Delivery Customer Fulfillment Center in the Denver Metro area, one of the fastest-growing areas in the country. Kroger also opened a new Kroger Delivery Customer Fulfillment Center in Romulus, Michigan, supporting customers in several geographies, including Michigan, Northern Ohio, and Indiana. And it expanded the Kroger Delivery network by opening seven new spoke facilities, which serve as last-mile cross-dock locations, including Louisville, Nashville, and Chicago in existing geographies, as well as Austin, Birmingham, Oklahoma City, and San Antonio in new geographies. 

"We are applying technology and innovation to improve freshness, grow Our Brands, and create a seamless shopping experience so our customers can get what they want, when and how they want it, with zero compromise on quality, selection and affordability," McMullen said. "We will continue to focus on providing affordable, fresh food to our customers, investing in wages and the associate experience, and creating zero hunger, zero waste communities because when we do those things well, we deliver attractive and sustainable shareholder returns."

This week Kroger released a report card and a syllabus of sorts for its environmental, social and governance (ESG) efforts. The retailer's 2022 ESG report, "Nurturing Shared Values," summarizes progress on its efforts to date and sharing its updated action plan.

Earlier this quarter, Kroger increased its dividend by 24%, marking the 16th consecutive year of dividend increases.  Additionally, during the quarter, Kroger repurchased $309 million in shares and year-to-date, has repurchased $975 million in shares. On Sept. 9, the Board of Directors authorized a new $1 billion share repurchase program.

Serving 60 million households annually nationwide through a digital shopping experience, and almost 2,800 retail food stores under a variety of banner names, Cincinnati-based Kroger is No. 4 on The PG 100, Progressive Grocer’s 2022 list of the top food and consumables retailers in North America.