Kroger has cut its annual sales forecast, pinched by moderating food and grocery prices at a time when volumes have come under pressure from consumers keeping a tight lid on spending.
Food prices are now moderating, with grocery inflation continuing to trend lower throughout the quarter as fresh food products go into deflation mode while packaged food items hit the ceiling on price hikes.
That has started to limit some of the revenue benefits enjoyed by food retailers over the past year, while consumers become increasingly thrifty and pick cheaper alternatives even in groceries.
Competition has also heated up in the grocery space with retailers looking to rein in prices and offer more low-cost food items to attract inflation-hit consumers. That could lead to a ramp-up in promotions in the coming months, potentially limiting profit margin growth at companies.
Kroger now expects fiscal 2023 identical sales, excluding fuel, to grow 0.6% to 1%, compared with its prior forecast toward the low end of a 1% to 2% rise. Analysts on average expect a 0.9% increase, according to LSEG IBES data.
The company lifted the lower end of its annual profit forecast by 5 cents, now projecting adjusted earnings per share between $4.50 and $4.60 for fiscal 2023. Analysts on average expect a per-share profit of $4.53.
The grocer, which has struck a nearly $25 billion deal to buy smaller rival Albertsons, posted an adjusted profit of 95 cents per share for the third quarter, beating estimates of 91 cents. Same-store sales, without fuel, dropped 0.6% while Wall Street expected a 0.5% drop.
Chairperson and CEO Rodney McMullen said, "Kroger's third quarter results highlight the strength and diversity of our business model in a challenged operating environment, as strong fuel performance and growth in our alternative profit businesses supported continued adjusted net earnings per diluted share growth."
McMullen added, "Our model's strength allows us to navigate many economic environments. We remain committed to balancing investments in associates and greater value for our customers while continuing to generate attractive and sustainable returns for our shareholders."
News by Reuters, additional reporting by ESM.