Dive Brief:

• Kroger recorded robust financial results for the third quarter, as it generated $34.2 billion in sales, up from $31.9 billion during the same period in 2021, the company announced Thursday. Same-store sales growth excluding fuel came in at 6.9% on a year-over-year basis.
• The grocer raised its projection for same-store sales growth for all of 2022, and now expects that metric to fall in the range of 5.1% to 5.3%. It also no expects earnings per share (EPS) to reach as high as $4.15, up from a previous projection of no more than $4.05.
• Kroger has become increasingly bullish about its business as the year has unfolded against a backdrop of powerful inflation and continued strong interest by consumers in at-home eating.

Dive Insight:

This is the third consecutive quarter in which Kroger has raised its financial guidance as it navigates a tricky inflationary environment and as a brighter spotlight now shines on the company in light of its proposed merger with Albertsons.

At the beginning of fiscal 2022, the company projected identical sales growth of 2-3%. It now expects a considerably higher range, while its earnings-per-share projection has risen 30 cents since the start of the year, to a range of $4.05-$4.15.

Kroger’s success in pushing identical-store sales growth up during the third quarter is attributable in part to the grocer’s heavy emphasis on fresh produce, Chairman and CEO Rodney McMullen said during an earnings call Thursday morning.

McMullen noted that at the end of Q3, about 1,250 of the company’s stores were certified for its Fresh Produce Initiative, a project that aims to increase shelf life for perishables.

“At these locations, we see higher fresh sales and identical store sales,” McMullen said about the certified stores. “With these impressive results, [we’ll] continue to roll out the initiative nationwide.”

Kroger same-store sales growth of just under 7% during its latest quarter compares with the 3.1% figure it posted for that yardstick during the third quarter of 2021. For all of last year, the grocer saw same-store sales excluding fuel increase by just 0.2%, well below the level it expects for 2022.

Kroger’s broad assortment of private brands also contributed to its performance in Q3, according to McMullen. Comparable store sales of private label products rose 10.4% during the period, while the company added 147 new items to its own brands.

McMullen highlighted Smart Way, the budget grocery brand Kroger announced in September, as a way for the company to appeal to price-conscious shoppers. Two million households have already shopped under the brand, he said, noting that Kroger added more products to the line during Q3 and plans to roll out additional selections during the coming months.

The grocer’s Kroger and Private Selection brands did especially well during Q3, and the company also saw strong growth in its pet food brands over the three-month period, which concluded Nov. 5, he noted.  

“We have been particularly impressed with private label development over the course of this year,” Neil Saunders, managing director of GlobalData Retail, said in emailed comments. “From our initial consumer data, it appears that these lines were a big hit over Thanksgiving and should help to continue to deliver as the holiday season progresses.”

On the e-commerce front, Kroger saw back-to-back quarters of digital growth led by delivery solutions, which were up 34% year-over-year, executives said. Overall digital sales were up 10% year-over-year.

As Kroger looks to grow its delivery services, McMullen said its Boost membership program, which launched in November 2021, plays a key role in engaging customers. Kroger now offers pickup within three hours at all of its stores and, in some markets, in as little as an hour, according to the retailer.

McMullen added that Kroger saw “very strong” growth in its loyal household growth, attributing that to omnichannel customer engagement. As Kroger continues to grow its share of loyal households, the company expects that to be a tailwind to its identical sales growth over time, he said.

“We're seeing customers move through the loyalty curve, and that's always been part of the strategy to really deeply reward customers and grow that relationship,” Chief Financial Officer Gary Millerchip said during the earnings call.