Kroger (NYSE:KR) has reported its earnings and they market continues to punish the name over competitive fears and concerns over comparable sales. So how were the results?
Well, Kroger saw net earnings of $353 million, or $0.39 per diluted share, and identical supermarket sales growth, without fuel, of 0.7% in the second quarter of 2017, which ended on August 12. Kroger’s net earnings for the second quarter last year were $383 million, or $0.40 per diluted share. Excluding the charges related to the 2016 adjustment item (see Table 6), Kroger’s adjusted net earnings for the second quarter last year were $454 million, or $0.47 per diluted share.
Total sales increased 3.9% to $27.6 billion in the second quarter compared to $26.6 billion for the same period last year. Total sales, excluding fuel, increased 3.8% in the second quarter compared to the same period last year. Gross margin was 21.7% of sales for the second quarter. Excluding fuel, ModernHEALTH and the LIFO charge, gross margin decreased 30 basis points from the same period last year. Kroger recorded an $18 million LIFO charge in the second quarter of 2017, compared to a $12 million LIFO charge in the same period last year.
Operating, General & Administrative costs as a rate of sales – excluding fuel, ModernHEALTH and the 2016 adjustment item – increased 12 basis points. Rent and depreciation with the same exclusions increased by 15 basis points.
FIFO operating margin on a rolling four quarters basis – excluding fuel, mergers and the adjustment items from the respective periods – decreased 53 basis points compared to the prior year.
Guidance was the biggest concern.
Kroger confirmed 2017 net earnings guidance for 53 weeks of $1.74-$1.79 per diluted share. Kroger confirms adjusted net earnings guidance range of $2.00 to $2.05 per diluted share. The company’s LIFO expectation remains unchanged at $80 million.
Kroger expects identical supermarket sales growth, excluding fuel, of 0.5 to 1.0% for the remainder of the fiscal year.
Kroger’s guidance does not include any effect from hurricanes Harvey and Irma. We believe that is a mistake. Going forward we will be watching for clues that it is stepping up to outcompete in this tough sector.