The north American supermarket retailer Kroger posted solid first quarter results, with an operating profit of $1,300m (£1.03bn), driven by increased customer footfall and digital sales.
The company’s grocery business performed better than expected, which helped compensate for lower fuel and health sales in the period.
Total sales were $45.3bn in the first quarter compared to $45.2bn for the same period last year, representing a 0.6% sales increase excluding fuel.
Todd A. Foley, interim CFO, said: “Gross margin was 22.4% of sales for the first quarter, while the FIFO gross margin rate (excluding fuel), decreased by seven basis points.”
Foley highlighted customers were relying increasingly on home delivery as sales increased by 17% and noted deliveries to new digitally enabled homes had risen by 8%.
Rodney McMullen, CEO, welcomed this change. He said: “Capturing more digital households is key to our long-term growth model. These households are more loyal and spend nearly three times as much with us.”
McMullen, emphasised the business was using machine learning and artificial intelligence (AI) to enhance the pickup experience for customers and to reduce costs.
“This is providing associates with the most effective pick routes which is enabling us to dramatically reduce pick lead time in our highest volume stores,” he said.
General operating and administration expenses (excluding fuel and accounting adjustments), increased by 0.22% due to increased staff salaries and incentive plans.
The LIFO charge for the quarter was $41m, compared to a LIFO charge of $99m for the same period last year and was attributed to lower inflation expectations.
Turning to cashflow, Foley said: “Kroger continues to generate strong free cash flow through consistent operating results,” and expects to continue to pay its quarterly dividend and for this to increase over time.
The firm has paused its share repurchase programme to focus on de-leveraging following the proposed merger with rival grocer Albertsons.
Foley confirmed that the sale of the Kroger Speciality Pharmacy (KSP) business as it was not part of the firm’s core strategy and the focus would be retail pharmacies.
The firm continues to innovate and introduced 346 new products into its own brand range, including Field & Vine, which offers customers high quality and regionally grown farm produce.
