Earnings

Kroger Beats Q1 Estimates Amid Restock Kroger

Kroger

As Kroger cuts prices and tests out new ways to sell products with its Restock Kroger program, the grocer beat earnings estimates for the first quarter of 2018. Kroger reported earnings per share of $0.73 and revenues of $37.5 billion, compared to analysts’ estimates of $0.63 and $37.3 billion.

Kroger’s shares jumped as much as 13 percent on the news, marking the company’s best intraday performance in nearly a quarter of a century, Reuters reported. Barclays wrote in a note that while the earnings were better than expected, “the real question in our view is whether Kroger can demonstrate stability,” according to reports.

Kroger has been taking a “spend smarter, not harder” approach as it endeavors to reset its existing supermarket stores to optimize space and keep customer favorites front and center on shelves. The data-driven “Restock Kroger” initiative was to take the place of new growth in 2018, with improvements to customer service and assortment winning out over expansion. In order to pay for these efforts, The Wall Street Journal reports that Kroger is opening fewer brick-and-mortar locations. Additionally, Kroger plans to sell 14 of its locations in North Carolina.

As Kroger rolls out this strategy, the retailer is also making inroads with delivery: Ocado, the U.K. online supermarket operator, has inked a deal with Kroger in which it will be its exclusive partner in the U.S., giving it an entry in the U.S. market. Reuters, citing Ocado’s Chief Financial Officer Duncan Tatton-Brown, reported that with the deal, Ocado’s home delivery platform will be available in the U.S. It’s the fourth deal Ocado has reached with supermarket operators across the globe.

To offer delivery of food in the U.S. with Ocado, Kroger will find 20 or more sites in the U.S. to build automated warehouse facilities. Kroger and Ocado are working together to find the first three sites that will open this year.  As for the impact to earnings for Ocado, Tatton-Brown said it should be neutral to full-year 2018 earnings.

And, in an effort to stay competitive with Amazon, which has entered the grocery market with its purchase of Whole Foods Market last year, Kroger has been making strategic moves. Earlier this year, CNBC reported that Kroger was mulling an acquisition of Boxed, the online wholesaler startup. But Boxed reportedly turned down the offer in March and announced plans to seek a new funding round instead.

Going forward, Kroger Chief Executive Rodney McMullen told WSJ that the company has “been aggressively working to transform our business and accelerate where we are going.” To that end, Kroger plans to continue to advance its technology efforts and work with its suppliers on controlling costs. At the same time, Kroger has acquired meal kit company Home Chef as it continues its Restock Kroger efforts.

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