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Kroger Management Talks: 3 Must-See Quotes

By Daniel Sparks - Dec 7, 2018 at 1:17PM

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Management talks private-label brands, same-store sales expecations, and customer trends.

Supermarket chain Kroger ( KR 3.87% ) just wrapped up a solid third quarter, posting better-than-expected revenue and adjusted earnings per share as the company makes progress on its "Restock Kroger" plan to invigorate its business. Adjusted net sales rose 1.7% year over year, and non-GAAP earnings per share increased 9%. Meanwhile, the company's digital sales increased 60% year over year -- an acceleration from 50% growth in Q2.

However, insights from the quarter extend beyond the figures in the company's third-quarter earnings release. During Kroger's third-quarter conference call, management provided useful commentary on the company's private-label brands, its same-store sales guidance, and customer trends.

Here are three key quotes from the earnings call.

A Kroger Express concept inside of a Walgreens store

Image source: Kroger.

Kroger brands continue to perform well

One aspect of the company's Restock Kroger plan is focused on further expansion of Kroger's private-label brands. It's no surprise the company wants to invest more in its brands. Not only are the brands performing well, but management said in its third-quarter earnings call that the Kroger brands represent one of the company's most profitable parts of its supermarket business.

Two of Kroger's best-performing private-label brands, Private Selection and Simple Truth, continued to do very well during the quarter, said Kroger CEO Rodney McMullen.

Our Private Selection and Simple Truth brands saw strong sales, unit, and gross margin gains in the third quarter. Simple Truth and Simple Truth Organic is our fastest-growing brand, with sales up double digits again in the third quarter.

Why same-store sales growth may reaccelerate in Q4

Kroger's same-store sales, which the company refers to as identical (ID) sales, decelerated in Q2 and Q3 compared to the first quarter of fiscal 2018; ID sales were up 1.6% in both Q2 and Q3 -- down from 1.9% growth in Q1. Should investors expect further deceleration?

On the contrary, a reacceleration seems more likely. With management guiding for identical sales growth in the second half of the year to be to be similar to the first half of the year, fourth-quarter identical sales growth will likely be higher than in Q3.

Kroger CFO Mike Schlotman provided further context on what to expect from identical sales growth during the company's conference call:

Our third quarter was close to the second quarter and our first quarter was a little better than the second quarter. We do have a little bit of ground to make up on that guidance. ... We are expecting a little bit better fourth quarter. I think we have great plans in place.

If there's weakness in the economy, it's not affecting Kroger

Given the market's pullback recently, there's some uneasiness on the Street about the health of the economy. When asked about the overall health of the company's customers and trends in loyal households, McMullen answered optimistically:

The tone of the customer, they continue to -- the economy still feels very good. People continue to buy wine, anything that makes their life easier, they will aggressively buy. ... Then from a household standpoint, we did continue to have a slight growth in households as well.

Overall, the conference call highlighted a confident management team that continues to execute on its Restock Kroger plan.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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