Kroger (NYSE:KR) has mostly missed out on the retailing boom that has helped push customer traffic to new highs at rivals like Walmart (NYSE:WMT) and Target (NYSE:TGT). The supermarket chain has been predicting faster gains ahead, though, since its shift to a multichannel posture is only just starting while these peers are further along in their rebound projects.

Kroger's second-quarter report this week contained hopeful signs of progress in its recovery initiatives. However, it still showed stubborn market-share losses that suggest intense competition over grocery store shoppers.

Here's a look at how the latest results stacked up against the prior year period:

 Metric

Q2 2019

Q2 2018

Change

Revenue

$28.2 billion

$28 billion

1%

Net income

$297 million

$508 billion

(42%)

Earnings per share

$0.37

$0.63

(41%)

Data source: Kroger's financial filings. 

What happened this quarter?

Kroger's sales growth accelerated significantly but still landed well below that of its chief rival, Walmart. The retailer's efficiency program, meanwhile, started delivering solid results as adjusted profits rose following declines in recent quarters.

A young woman shops for groceries.

Image source: Getty Images.

Highlights of the quarter include:

  • Sales at existing locations rose 2.2.% compared to below 1% in each of the last three quarters. That marked Kroger's fastest expansion pace in roughly two years, but Walmart and Target are each enjoying decade-high growth rates of 3% and 5%, respectively.
  • Gross profit margin was unchanged at 22% of sales as higher fuel profits were offset by weaker results at the pharmacy.
  • Operating expenses were stable, leading to operating margin of $559 million, or 2% of sales, compared to $549 million a year earlier.
  • A non-cash charge related to Kroger's investment in e-commerce specialist Ocado was responsible for pushing reported net income lower by over 40% despite the steady operating earnings.
  • The consumer staples giant paid down over $1 billion of debt in the past six months, pushing its leverage ratio down to within management's target range.

What management had to say

Executives celebrated the progress they're seeing as the rebound strategy starts lifting results. "We are pleased with the improvement of trends in our supermarket business," CEO Rodney McMullen said in a press release. "Guided by our customer obsession," he continued, "Kroger delivered our best [comparable-store] sales...result since the launch of our transformation plan."

Management highlighted a few financial wins, too. "We delivered strong free cash flow and are now within our targeted net total debt to adjusted [earnings] range," McMullen said.

Looking forward

McMullen and his team confirmed their full-year outlook that predicts comps will rise about 2% after accounting for the recent sale of the company's convenience store segment. That prediction might seem underwhelming given that Walmart and Target each had more bullish comments for investors about their 2019 forecasts following strong second-quarter results.  

Yet Kroger isn't entirely missing from that retailing party. Shareholders saw a meaningful growth rebound this quarter, and the chain's forecast implies even faster gains ahead over the next six months. If Kroger can deliver on those modest targets, it will be in prime position to return to robust sales and profit growth in fiscal 2020.