Kroger Boosting Digital Initiatives As Identical Store Sales Growth Falters

As it confronts new value grocery competition and discounters determined to cut costs in key competitive categories, as well as deflation in many segments, Kroger posted lower identical store sales and net earnings in the fourth quarter.

In a conference call, Rodney McMullen, Kroger’s chairman and CEO, said the company was “disappointed” in the identical store sales decline. “Last year certainly didn’t end the way we expected,” he said. However, he said market share growth, private label gains and gains in tonnage of product sold were positive indicators.

He also said that the company would continue investing in its digital initiatives to develop a more sophisticated understanding of how customers interact with Kroger and to make its operations easier to shop, expanding the online-based ClickList and Express Lane services, and testing Uber and other delivery programs.

In the fourth quarter, Kroger posted company net earnings of $506 million, or 53 cents per diluted share, versus $559 million, or 57 cents per diluted share, in the year-earlier quarter. Still, Kroger exceeded a MarketBeat analyst average estimate for diluted earnings per share by a penny.

Identical store sales, without the impact of fuel price fluctuations, slipped by 0.7% versus the quarter a year before. The company reported a fourth quarter total sales increase of 5.5% to $27.61 billion year over year, with total sales, excluding fuel, up 4.4% in the fourth quarter over the same period a year previous. Kroger’s recent mergers with the supermarket chain Roundy’s and specialty pharmacy operator ModernHealth contributed to the sales growth numbers. Operating profit was $858 million versus $928 in the quarter a year previous.

For the full fiscal year, Kroger posted company net earnings of $1.98 billion, or $2.05 per diluted share, versus $2.04 billion, or $2.06 per diluted share, in the year-earlier quarter. Identical store sales, without the impact of fuel price fluctuations, gained 1% from the year before. The company reported a total sales increase of 5% to $115.34 billion year over year, with total sales, excluding fuel up 6.7% versus the year before. Operating profit was $3.44 billion versus $3.58 billion in the year previous.

McMullen said, “True to our history, we will continue making proactive investments in our Customer 1st Strategy to maintain our strong competitive position. We are lowering costs to invest those savings in our people, our business, and technology. This approach will enable us to deliver on our long-term net earnings per diluted share growth rate target of 8% to 11%, plus an increasing dividend, as it has in the past. In 2016, Kroger grew market share, increased tonnage, and hired more than 12,000 new store associates. For 2017 and beyond, we will continue delivering for our customers while also setting the company up for our next phase of growth and customer-first innovation.”