‘In the mid-league’: Kroger books lower profit amid flat sales growth

(Source: Bigstock)

The Kroger Company has reported flat sales and lower profit for the first quarter, which indicates the retailer is struggling to generate meaningful growth, according to an analyst.

The company’s total sales were $45.3 billion compared to $45.2 billion for the same period last year. Although performance has picked up since the last quarter, overall sales and comparable revenue were virtually flat.

On the bottom line, operating profit fell 12 per cent off the back of a 2.3 per cent decline in the prior year.

Neil Saunders, MD of GlobalData, said the firm is now “stuck in the mid-league” in terms of performance and is facing increased pressure from several directions.

“It is particularly notable that Kroger’s headline sales figures are below both the prevailing rate of inflation in grocery and below the overall growth performance of the market. 

“This signifies that both volumes and market share are sliding which is, in turn, an indication that Kroger is on the back foot,” added Saunders.

While customers continue to cut back as their incomes remain under pressure, the company is not doing enough to push value for money and low-price messages to its shoppers, the analyst said.

Kroger is not the only retailer suffering from this, but it has not been able to offset this erosion by picking up new customers, he added.

On the digital front, sales rose 8 per cent, a solid rate of growth and around average for the grocery sector. The company also delivers a very solid digital proposition that is reliable and easy to use, which generates good levels of loyalty, said Saunders.

The problem is that margins are still weak in the online space, and the continued trend of shoppers cutting back will make growing volumes tricky, he added.

Overall, Saunders described Kroger as a “good retailer”, but the company cannot afford to lose too much market or customer share. 

“While the merger with Albertsons, if it goes ahead, would act as a smoke screen for problems and issues, Kroger must act as if this is off the table and do the work to boost its own business,” he concluded.

For the full year, the retailer expects sales to increase by 0.25-1.75 per cent.

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