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By Micah Maidenberg
This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (June 21, 2019).
Kroger Co. executives are seeking patience from investors as they continue to oversee efforts to transform the business while facing heightened competition from a range of food retailers and shifting shopping patterns.
The nation's biggest supermarket operator on Thursday reported same-store sales excluding fuel rose 1.5% in the latest quarter, a weaker performance compared with last year and below what analysts predicted for the period.
Kroger faces competition from growing discount chains like Walmart Inc. as well as from Amazon.com Inc., which is working to bring customers into its Whole Foods Market unit and plans to launch a separate grocery business.
Chief Executive Rodney McMullen said on a conference call that Kroger must "step up our game."
"What we find is there's a lag between when you make those improvements and when the customer starts rewarding you with their checkbook," he said, referring to efforts to upgrade the experience for shoppers.
The company has been investing in its e-commerce operation and said on Thursday that home-delivery services or online-order-and-pickup at stores is now available at 93% of its locations. Digital sales grew 42% in the first quarter, which ended May 25.
Kroger has also been developing new businesses, such as selling consumer data and targeted advertising. The company said those efforts would yield $100 million in incremental operating profit in its current fiscal year compared with the prior one.
Shares of Kroger closed down 2% at $23.13 on Thursday and have fallen 12% over the past 12 months, compared with a 6.5% gain in the S&P 500.
The Cincinnati-based grocer reported $37.25 billion in revenue in the first quarter, down 1% from a year earlier but better than what analysts polled by FactSet had forecast.
The company attributed the most recent decline to the sale of its convenience-store business. Kroger has now reported year-over-year total sales declines for three consecutive quarters.
Pet products, natural foods and several beverage categories were strong performers in the latest period, executives said. Kroger also added 219 of new private-label products during the quarter. Sales of such brands grew faster than total sales, driven in part by products like pork-belly bites.
The profit margin for private-label products exceeds what Kroger gets from selling national brands. But overall gross profit margin fell in the quarter, primarily due to the performance from its pharmacy business, according to the company.
Kroger reported a profit of $772 million, or 95 cents a share, compared with $2.03 billion, or $2.37 a share, a year earlier, when the grocer recorded a gain on the sale of its convenience-store business.
After adjustments, Kroger reported a profit of 72 cents a share for the most recent period, beating Wall Street targets by a penny.
The grocer has been slimming down its operation and hunting for investment opportunities. In April, it sold a company that makes ice cream, ice teas and other products. Kroger said in May it formed a new venture with a private-equity firm to make investments in consumer brands.
Kroger recently struck new labor contracts with unions in Indianapolis, Denver and Louisville, and is working on deals with employees in several other cities, finance chief Gary Millerchip told analysts.
Like other companies, Kroger has been raising wages amid the tight labor market. The new contract covering Indianapolis workers increased starting pay from $8.50 to $10 per hour for most clerks, the company said in a statement Monday.
Corrections & Amplifications A new contract covering Kroger's Indianapolis workers increased starting pay from $8.50 to $10 per hour for most clerks. An earlier version of this article incorrectly stated that starting pay increased from $8 per hour. (June 20, 2019)
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(END) Dow Jones Newswires
June 21, 2019 02:47 ET (06:47 GMT)
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