The Kroger Co. reported a 42% increase in online sales for its first fiscal quarter of 2019, ending May 25. However, total revenue was up just 1.5% when looking at stores operating in both periods. Plus, total revenue declined to $37.3 billion for the quarter from $37.7 billion in the year-ago period, when accounting for the sales of its convenience store businesses, including Kwik Shop and other regional convenience stores. Kroger, No. 17 in the Internet Retailer 2019 Top 1000, did not disclose exact ecommerce revenue for the quarter.
Kroger, America’s biggest traditional supermarket chain, has found life more difficult amid the rock-bottom prices and improved quality offered by discounters like Walmart Inc. (No. 3) and Germany’s Aldi. It doesn’t help that Dollar General Corp. is beefing up its grocery section, adding more fresh and frozen food while entering more urban markets with stores that cater to millennials. Even drugstores sell plenty of food nowadays, which has prompted Kroger to partner with Walgreens to sell groceries in some locations.
“While the results generally met expectations, the other large retailers of food that we cover performed a little better,” Joe Feldman, an analyst at Telsey Advisory Group, said in a note.
In response, Kroger is pushing hard to bolster online sales, which grew 42% last quarter. The grocery retailer has also tested autonomous deliveries in Texas and Arizona. About 35 million more Americans are now buying food online compared with a year ago, according to Coresight Research, but online penetration is still below markets like the U.K.
Kroger generated about $5 billion in digital sales last year, and by the end of this year it plans to offer pickup or delivery service for all of its U.S. shoppers, up from about 90% last year.
Start-up costs associated with new fulfillment facilities for online orders weighed down the gross margin according to CEO W. Rodney McMullen in a call with investors transcribed by Seeking Alpha. Kroger reported a gross margin of 22.2%, down slightly by 40 basis points. Other ecommerce related profit drags include costs associated with its Microsoft Corp. partnership, which made possible the rollout of digital shelf tags to allow for more agile pricing.
In other news:
- Furniture maker La-Z-Boy Inc.’s acquisition of digitally native furniture seller Joybird is expected to soon be profitable. La-Z-Boy (No. 508) reported $22 million in sales via web-only Joybird for its fourth quarter ending April 27. Since the acquisition closed in August, it’s generated $75 million in sales for La-Z-Boy. The easy chair maker expects Joybird to be profitable during the second half of its fiscal 2020. Joybird is the company’s fastest growing business.
- Home furnishing retailer Crate and Barrel acquired San Francisco-based home decor retailer Hudson Grace, which has six stores and operates online. Crate and Barrel, owned by Otto Group (No. 6), will help Hudson and Grace expand its online presence and build out its network of small-format stores. Crate and Barrel generates 47% of its revenue through ecommerce, but has not said if Hudson Grace will be available directly on its existing sites. Crate and Barrel did not disclose terms of the deal.
- Shipping carrier FedEx Corp. is set to report its fourth quarter results next week, but analysts are worried that trade tensions will make those earnings disappointing. “Given several macro overhangs (trade war, U.S. industrial economy, Eurozone softness, etc.), we wouldn’t be surprised to see a fairly wide EPS guidance range,” Raymond James analyst Patrick Tyler Brown wrote in a note to clients. The analyst said the recently announced dividend for FedEx’s fiscal first quarter was the first time since June 2009 that the payout did not increase and wondered if it provided a “telling sign” for sluggish guidance. While the results may be disappointing, some say the market has already factored that in.