Grocery chain operator Kroger Co. reported online sales grew 127.0% for its fiscal 2020 second quarter, which ended Aug. 15. The retailer also provided financial guidance for the rest of 2020—something it had been reluctant to do during the pandemic.
“Results for the second quarter were strong and reinforced the strategic investments we have made over the last several years as part of Restock Kroger. The quarter turned out much better than we previously expected,” said Gary Millerchip, Kroger’s chief financial officer, in a Sept. 11 conference call with analysts, as transcribed by Seeking Alpha.
Restock Kroger is the retailer’s ongoing strategic plan, launched in 2017. Kroger launched the initiative to build on its commitment to ecommerce and its use of customer data to personalize how it deals with customers, among other things.
For the full year 2020, Kroger (No. 13 in the 2020 Digital Commerce 360 Top 1000) expects comparable sales growth, excluding fuel, to exceed 13.0% compared with the previous fiscal year, Millerchip said, while earnings per share growth should be 45.0% to 50.0%. Also, the company expects 2021 sales and earnings will be higher than it would have expected before the COVID-19 pandemic, according to a statement.
As recently as June, Kroger declined to provide 2020 financial guidance, citing the pandemic’s uncertainty.
During the conference call, Millerchip said digital sales contributed 4.4% to comparable sales without fuel—and that the online sales were adding to Kroger’s bottom line. “Our digital sales growth was profitable on an incremental basis, and we were pleased with the progress we made to improve profitability by reducing the cost to fulfill a pickup order during the quarter,” Millerchip said.
Millerchip also said new-customer engagement and with pickup and delivery services continued to grow. Kroger continues to invest in the customer experience, which includes offering fee-free order pickup, he said.
Pandemic-related costs add up
Kroger’s response to the pandemic was expensive. “Since March, we have invested more than $1.00 billion to both reward our associates and to safeguard them and our customers through the implementation of dozens of safety measures,” CEO Rodney McMullen said during the Sept. 11 call. Those costs include a $300 bonus announced in March for every full-time store associate and $150 for every part-time associate. In May, Kroger followed those payments with a bonus of $400 for qualified full-time associates and $200 for qualified part-time associates.
Kroger operates grocery stores in 35 states under various banner names, such as Kroger, Pick ‘n Save, Ralphs and Mariano’s. The retailer says it has more than 2,100 pickup locations and 2,400 delivery locations, reaching 98.0% of its customers.
Earlier this month, Kroger Health, the retailer’s healthcare division, announced a flu-shot program that includes touchless in-store appointments and drive-through vaccinations–each of which can be booked online. Kroger Health will also provide on-site flu shot programs for businesses and organizations. Starting Aug. 20, Koger Health expanded its COVID-19 testing services to all of its more than 220 clinic locations by appointment for both symptomatic and asymptomatic patients.
For the quarter ended Aug. 15, Kroger reported:
- Revenue was $30.49 billion, up 8.2% compared with $28.17 billion for the comparable quarter in 2019.
- Comparable sales excluding fuel grew 14.6% compared with the year-ago quarter.
- An operating profit of $820.0 million, up 46.7% from $559.0 million
- Net income was $819.0 million, up $175.8% from $297.0 million for the year-ago quarter.
- The gross margin was 22.8% of sales.
For the six months ended Aug. 15, Kroger reported:
- Revenue was $72.04 billion, up 10.1% compared with $65.42 billion in the comparable period in 2019.
- Comparable sales excluding fuel grew 17.1% compared with the year-ago period.
- An operating profit of $2.15 billion, up 47.0% fro. $1.46 billion a year earlier/
- Net income was $2.03 billion, up 90.0% from $1.07 billion for the same period in 2019.
Percentage changes may not align exactly with dollar figures due to rounding.