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Kroger: Fueled-Up Results--Watch Out Ahead as this Oil Tanker Has Turned Your Way

Thomas Paulson
Jun 24, 2022
Kroger: Fueled-Up Results--Watch Out Ahead as this Oil Tanker Has Turned Your Way

Key Kroger Metrics

By "Leading with Fresh and Accelerating with Digital," Kroger was once again able to drive above-plan sales and earnings growth this quarter. CEO Rodney McMullen shared, "Many customers continue to shop premium products throughout the store, including Private Selection, Murray's Cheese, and deluxe meal solutions. For other customers whose budgets are more directly impacted by food and fuel inflation, they are actively looking for ways to save. We're doing everything we can to help this customer stretch their budgets…What we're finding is customers are coming in more frequently than before but they're not buying as many items on each shop." This is consistent with Placer visit per location data for Kroger's supermarket banners over the past five months (below).

  • McMullen also noted that Kroger customers "are using [its] fuel rewards program now more than ever and, in fact, more than 600,000 incremental households engaged for the first time this quarter." Catch our comments on how fuel rewards programs are driving food consumption bifurcation here.
  • Kroger management also highlighted its Boost membership program: "Boost membership is delivering promising results. Our one-of-a-kind membership program offers incredible value where customers can get unlimited free delivery on orders of $35 or more, double the fuel points on every dollar spent at Kroger." Moreover, the program will now be launched nationwide.
  • Comparable-stores sales increased +4.1%, leaving the 2-year CAGR flat and the 3-year CAGR stable. With overall basket sizes seeing double-digit inflation, the gap reflects fewer units in the basket, trade-down to Kroger’s brands, and "strategic price investments" (including produce and dairy) by Kroger. Customer household count and loyal shopper numbers both improved. Moreover, traffic was up YoY.
  • Trailing-twelve-month (TTM) sales per square foot were $690 (compared to $684 last quarter) and are highly likely to be up mid-single-digits at this point next year.
  • TTM EBITDA and free cash flow (FCF) were $7.4B and $2.5B, respectively, compared to $5.5B and $1.8B in 1Q21. Both metrics are likely to be up mid-single-digits at this point next year. Supporting that favorable outlook was Kroger’s Board increasing its dividend by 25% to $770M annually.
  • Profitability increased on fixed-cost sales leverage despite retail prices lagging wholesale price increases.
  • The company opened new fulfillment/delivery facilities powered by Ocado in Dallas and Pleasant Prairie (Kenosha), WI, bringing the total number of facilities to five. Kroger also announced that its next new market will be Denver, with drivers able to travel up to 90 miles from facilities to make deliveries. On the CFCs, McMullen shared, "if you look at the sheds, the NPS scores continue to be outstanding. The retention rate and repeat purchase rate on the sheds is very strong. And they're continuing to move in the right direction." Placer.ai visitation data (visitor and employee) indicates improving activity trends at two of the initial Ocado CFC locations in Groveland, FL, and Middletown, OH over the past twelve months (below).

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Thomas Paulson

Director of Research and Business Development, Placer.ai

Thomas Paulson spent 20 years as a Wall Street analyst and a member of asset management teams at AllianceBernstein and Cornerstone Capital, representing top-50 ownership positions including Target, Home Depot, Nike, Amazon, Google, and many more.

He brings consumer related expertise and knowledge of enterprises in retail, CPG, financial services, telecom, and entertainment.

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