The Kroger Co (KR) Q1 2025 Earnings Call Highlights: Strong Sales Growth Amid Strategic Store ...

Identical Sales Growth (Excluding Fuel): Increased by 3.2%. Adjusted Net Earnings Per Diluted Share: $1.49, an increase of 4%. E-commerce Sales Growth: 15% increase in the first quarter. Fresh Sales Performance: Strong performance, better than center store sales. Our Brands Sales Growth: Grew faster than national brands for the seventh consecutive quarter.

Store Closures: Plans to close approximately 60 stores over the next 18 months. New Store Projects: On track to complete 30 major store projects in 2025. Adjusted FIFO Operating Profit: $1.5 billion. Fuel Sales: Lower than last year, with fewer gallons sold. Net Total Debt to Adjusted EBITDA: 1.69.

Capital Allocation: $5 billion ASR program expected to complete by the third fiscal quarter of 2025. Full Year Guidance for Identical Sales Without Fuel: Raised to a range of 2.25% to 3.25%. Release Date: June 20, 2025 For the complete transcript of the earnings call, please refer to the full earnings call transcript. Positive Points The Kroger Co (NYSE:KR) reported a solid first quarter with strong sales in pharmacy, e-commerce, and fresh categories, leading to a 3.2% increase in identical sales, excluding fuel. The company's Our Brands segment continues to outperform national brands for the seventh consecutive quarter, driven by high-quality products and innovation such as the introduction of 80 new protein products.

E-commerce sales grew by 15% in the first quarter, with improvements in order accuracy and reduced pickup wait times, contributing to increased customer engagement. The Kroger Co (NYSE:KR) is focusing on cost optimization and efficiency, which includes modernizing operations and reviewing non-core assets to reinvest savings into lower prices and additional store hours. The company is committed to improving associate wages and benefits, which has resulted in record retention rates and a better customer experience. Negative Points The Kroger Co (NYSE:KR) plans to close approximately 60 underperforming stores over the next 18 months, which could impact local employment and community presence. Fuel sales were lower than expected, with a decline in gallons sold and profitability, posing a headwind for the company's results for the remainder of the year.

Despite growth in e-commerce, the segment is not yet profitable, and the company acknowledges the need for further improvements to achieve profitability. The macroeconomic environment remains uncertain, with customers spending cautiously and seeking more value, which could impact sales growth. The company faces challenges with ongoing labor negotiations, including a recent strike by associates at King Super store locations, which could affect operations and labor relations. Story Continues Q & A Highlights Q: How is Kroger addressing pricing and value perception with customers, and can these efforts be margin-neutral? A: Ronald Sargent, Interim CEO, stated that Kroger is investing in lower prices, having reduced prices on 2,000 items during the quarter. The company is also simplifying promotional offers to make them more accessible and valuable.

These pricing investments have resulted in better sales, gross margin, and customer satisfaction. David Kennerley, CFO, added that they aim to improve price perception on a margin-neutral basis by making prices easier to access and maintaining decent gross margin performance. Q: Can you provide more details on Kroger's e-commerce profitability and future plans? A: Ronald Sargent explained that Kroger has made progress in e-commerce, with a 15% growth in the first quarter. The company has consolidated its e-commerce operations under Chief Digital Officer Yael Cosset to improve focus and ownership. While e-commerce is not yet profitable, Kroger is working on a plan to address performance in each market and expects continued growth and profitability improvements.

However, specific profitability details are not disclosed. Q: What is Kroger's approach to identifying non-core assets and capital allocation priorities? A: Ronald Sargent defined core assets as those dedicated to serving customers, including stores, e-commerce, and alternative revenue streams. David Kennerley emphasized that capital allocation will focus on projects offering higher returns, with remodels sitting in the middle of their average return rate. Kroger aims to optimize costs and modernize operations to support long-term financial targets and operational efficiency. Q: How is Kroger handling the growth of its Our Brands portfolio, and are there any regional differences in performance? A: Ronald Sargent highlighted strong growth in Our Brands, which outpaced national brands for the seventh consecutive quarter.

The company sees significant opportunities for further acceleration, driven by high-quality products and innovation, such as the Simple Truth protein line. Sargent noted that Our Brands differentiate Kroger from competitors. David Kennerley added that better share performance was observed in markets with new store openings, but no significant regional differences were noted. Q: What are the key drivers of Kroger's market share gains, and how does e-commerce contribute to this? A: Ronald Sargent attributed market share gains to new store openings, improved in-store experience, competitive pricing, and simpler promotions. E-commerce growth, particularly the 15% increase in the first quarter, also contributed to market share gains.

Sargent emphasized the importance of opening new stores and enhancing customer service to drive market share improvements. For the complete transcript of the earnings call, please refer to the full earnings call transcript. This article first appeared on GuruFocus. View Comments