Surging Demand for Discount Groceries in the U.S. Kroger's Q1 Performance Exceeds Expectations

According to the Zhitong Finance and Economics APP, before the US stock market opened on June 20th, the well-known US retailer Kroger (KR.US) announced its financial performance for the first quarter of 2024. The financial report data shows that Kroger's same-store sales and profits for the quarter exceeded Wall Street's expectations, to some extent benefiting from the ongoing inflation in the United States, tighter household budgets, and more customers flocking to its stores to buy cheap groceries, especially inexpensive food items.

The financial report data shows that Kroger's total sales for Q1 were $45.3 billion, slightly higher than analysts' general expectations, with a slight year-on-year increase of 0.3% compared to the same period last year; Q1 same-store sales for this supermarket chain (excluding fuel projects) increased by 0.5% year-on-year, while analysts generally expected only a 0.13% growth rate.

Kroger's net profit attributable to the company for Q1 was $947 million, compared to $962 million in the same period last year; Kroger's diluted earnings per share under GAAP for Q1 were $1.29, compared to $1.32 in the same period last year. Adjusted earnings per share under Non-GAAP for Q1 were $1.43, better than the analysts' general expectation of $1.35, while it was $1.51 in the same period last year.

Kroger's adjusted FIFO operating profit for Q1 was $1.499 billion, compared to $1.699 billion in the same period last year. Kroger's FIFO gross margin excluding adjustments such as fuel for Q1 decreased slightly by 7 basis points compared to the same period last year.

Thanks to the better-than-expected latest performance, the company's stock price rose by more than 2% in early trading on the US stock market, but later turned into a slight decline. The company's $24.6 billion merger deal with smaller competitor Albertsons is currently undergoing antitrust review.

Public information shows that Kroger is one of the largest chain grocery brands in the United States, offering a wide range of products including food, health and beauty products, drugs, and fuel. Albertsons also operates food and drug retail, with a store network across the United States offering groceries, general merchandise, health and beauty care products, pharmacies, fuel, and other items. Kroger's market value is close to $40 billion, far exceeding Albertsons' market value of around $11.5 billion.

In the view of Wall Street analysts, the main reason for the merger between the two parties is to enhance competitiveness in the increasingly fierce US retail market. The new retailer formed after the merger is expected to significantly save costs through economies of scale, provide more competitive prices and a wider range of product choices, enhance customer experience through technological integration, and expand its geographical footprint in the US market, which is crucial in the face of competition from large retailers such as Walmart and Amazon With food prices in the United States starting to ease faster than restaurant menu prices, budget-conscious American consumers are choosing to cook at home more often rather than dine out, which is helping to boost grocery store sales. Data from the US Bureau of Labor Statistics shows that in May, unadjusted domestic food prices in the United States rose by 1% compared to the same period last year, while household food prices under the benchmark of restaurant dining in May 2023 increased by 4%.

Kroger has taken multiple measures such as promotions and lowering grocery prices to attract more consumers at lower prices, while also increasing investments to improve its online purchasing business and adding more products to its private label portfolio to drive sales.

According to the latest data from customer location and foot traffic analysis company Placer.ai, from February to May this year, Kroger's customer visits were on average 5.1% higher compared to the same period last year.

Retail chain Kroger also reiterated its full-year same-store sales performance guidance, expecting same-store sales growth excluding fuel items to be between 0.25% and 1.75%, with adjusted profit prospects between $4.30 and $4.50 per share, higher than the analyst consensus of $4.40 to $4.43; Kroger also expects full-year adjusted FIFO operating profit to be between $4.6 billion and $4.8 billion; and full-year adjusted free cash flow to be between $2.5 billion and $2.7 billion.

Last month, US membership-based retail giant Costco (COST.US) also saw strong demand from consumers for fresh and bakery products, with customers also stocking up on its low-priced and practical discretionary products.

Analyst Arun Sundaram from CFRA Research stated, "The first quarter is expected to be the low point of the year, which means as consumer shopping progresses throughout the year, revenue and net profit will show stronger growth." Regarding Kroger's reiterated performance guidance, Sundaram pointed out, "Investors will be pleased to see this reiterated performance guidance, as there were concerns that Kroger might lower its expectations."