Kroger Co raised its annual sales and profit forecasts on Friday as inflation-hit consumers drive up demand for groceries and household essentials at the cost of discretionary goods. Shares of the Cincinnati, Ohio-based grocer whose quarterly results also topped estimates, rose nearly 4%.
Grocery retailers tend to perform well in an economic turmoil as cash-strapped consumers prioritize spending on food and other essentials, with Kroger also benefiting from demand for its cheaper in-house items such as cheese and meats.
“We saw incredible engagement in our (private-label) brands during the quarter with identical sales growth of 10.2% compared to last year,” Kroger Chief Executive Officer Rodney McMullen said.
However, the big box retailers’ larger dependency on apparel and other discretionary products that have fallen out of favor has led to inflated inventories, more discounts and a drop in profits.
Kroger, which is focused on groceries, reported a 56.5% jump in attributable profit to $731 million in the second quarter. Excluding one-off charges, it earned 90 cents per share, beating estimates of 83 cents a share.
Profit margins at Kroger, which has gas stations attached to many of its stores, were also likely helped by an increase in fuel prices, BMO Capital Markets analyst Kelly Bania said.
Kroger forecast adjusted same-store sales growth of 4% to 4.5% for fiscal 2022, compared with its prior outlook of a 2.5% to 3.5% increase.
The U.S. supermarket chain forecast annual earnings per share between $3.95 and $4.05, compared with its prior outlook of $3.85 to $3.95.
Same-store sales, excluding fuel, climbed 5.8% in the second quarter, compared with estimates of a 4.6% rise, according to IBES data from Refinitiv.