Kroger lifts annual forecasts as online grocery investments click

Business

Kroger Co (KR.N) raised its forecast for annual profit on Thursday, betting that its quick pickup and delivery services will encourage Americans to order groceries online even as they dine out again.

The company’s focus on private labels, use of robots to more quickly stock and dispatch goods through a partnership with Ocado (OCDO.L) and tie-ups with third parties for deliveries are expected to help Kroger sustain a rapid online sales growth seen since 2019.

First-quarter digital sales jumped 16% at Kroger, even as Amazon.com Inc (AMZN.O) and big-box rivals Walmart Inc (WMT.N) and Target Corp (TGT.N) doubled down on grocery.

“The customers continue to like to shop online … When they shop (online and in stores), our retention rate is incredibly high,” Chief Executive Officer William McMullen said on a post-earnings call.

Kroger forecast 2021 adjusted profit per share between $2.95 and $3.10, compared with its prior range of $2.75 to $2.95. It expects 2021 adjusted same-store sales to fall up to 4%, while it had earlier projected a decline of up to 5%.

“We do not believe most investors expected a print this strong, nor a guidance raise this substantial,” J.P. Morgan analyst Ken Goldman said.

Shares of Kroger, which unveiled a $1 billion buyback program, jumped 3%. They have gained about 23% this year, compared to a 12% gain for the broader S&P 500 index (.SPX)

The company expects at-home food consumption to soften as reopenings gather pace, even as customers shop more frequently after a year of consolidated trips.

First-quarter revenue came in above pre-pandemic levels at $41.3 billion, above Refinitiv IBES estimates of $39.78 billion.

Strong performance in its alternative profit business, which includes media and personal finance divisions, helped Kroger earn $1.19 per share, above estimates of $1.01.