By Sanskriti Shekhar and Juveria Tabassum
Sept 11 (Reuters) – U.S. grocer Kroger cut its annual identical sales forecast on Friday, joining rival Walmart in bracing for weaker consumer spending even on staples such as food and household items in the face of economic uncertainty.
U.S. consumer sentiment weakened in August and retail sales unexpectedly declined in July for the first time in nine months, as middle- and lower-income households increasingly prioritize essentials and value purchases in the face of persistent inflation.
The lowered sales outlook from one of the largest U.S. grocers raises concerns about the health of the American consumer and adds pressure on CEO Greg Foran, who took the helm in February.
“Customers remained under pressure and that has affected the industry broadly, unit growth has slowed since the start of the year,” CEO Foran said on a post-earnings call.
While Kroger’s ability to maintain its profit forecast highlights its cost-control efforts, the slowing sales underscore intense competition from rivals such as Walmart and Aldi.
“Traditional supermarkets like Kroger have lost share across every income group over the past several years,” said Michael Gunther, analyst at Consumer Edge, as consumers become more selective and increasingly gravitate toward retailers offering lower prices or a differentiated shopping experience.
Kroger also said lingering effects from a cyclospora outbreak on its produce reduced second-quarter identical sales excluding fuel by about 35 basis points.
It expects full-year identical sales without fuel to increase in the range of 0.2% to 0.8%, compared with its prior forecast of a 1% to 2% rise.
The company’s updated sales forecast includes a roughly 140-basis-point headwind from the Inflation Reduction Act, which lowered prescription drug prices for Medicare beneficiaries, impacting revenue at its pharmacies. Walmart in its recent quarterly results also flagged a similar hit, after reporting its slowest sales growth in six years.
Kroger’s gross margin for the three months ended August 15 was 22.4% of sales, lower than 22.5% a year ago, partly due to higher fuel and transportation costs, as well as the grocer’s move to lower prices on some products.
Second-quarter identical sales growth slowed to 0.2% from 3.4% a year ago, and missed estimates of 0.9% growth, according to data compiled by LSEG.
On an adjusted basis, the company posted quarterly profit of $1.09 per share, compared with estimates of $1.06.
Shares of the company, which were down about 8% YTD, were flat in early trading.
(Reporting by Sanskriti Shekhar and Juveria Tabassum in Bengaluru; Editing by Devika Syamnath and Christian Plumb)
Comments