Investors had good reasons to be optimistic heading into Kroger's (NYSE:KR) fiscal first-quarter report. The supermarket chain's stores remained open during peak pandemic social-distancing efforts in the U.S. over the past few months, and peers such as Walmart (NYSE:WMT) and Costco (NASDAQ:COST) had announced head-turning Q1 growth as spending soared on essential consumer products.

On Thursday, Kroger posted its own record growth and profit numbers, but management stayed cautious about the long-term growth outlook.

Let's jump right in.

A woman shops for groceries while wearing a mask.

Image source: Getty Images.

Winning market share

With demand spiking for home products like groceries and cleaning supplies, there wasn't a question about whether Kroger would improve on the 2% sales growth pace it had been posting before the COVID-19 pandemic began. The bigger mystery was on market share, given that Walmart saw a 10% jump in its latest quarter and Costco has been expanding at a 7% rate. Dollar General (NYSE:DG) has so far seen the biggest boost in the industry, with sales rising 22% through early May.

Kroger wasn't far behind that record, though. Comparable-store sales jumped 19% to $41.5 billion in the quarter, equating to an additional $4.2 billion of revenue. While its reporting period doesn't sync up exactly with Walmart, this blistering growth figure implies a strong market share performance against its key competitor. It also helps explain why the retailer has had to ramp up hiring to handle the unprecedented volume spike. Kroger's digital business was a standout, with sales soaring 92% compared to Walmart's 74% increase.

Staying profitable

Kroger's finances also sparkled in the period, with operating cash flow jumping to $4.2 billion from $2.3 billion a year ago. Bottom-line profit margin edged higher even though the chain spent extra cash on wages, employee benefits, and COVID-19-related cleaning and maintenance expenses.

As a result, earnings rose to $1.52 per share while most investors following the stock were expecting closer to $1 per share of profit.

CEO Rodney McMullen and his team credited the investments they've made in recent years aimed at improving the e-commerce platform and the in-store shopping experience. This spending "helped Kroger deliver improved results in 2019," McMullen said in a press release, "and very much came to the forefront as we provided our customers with the fresh food and essentials they have needed during the pandemic."

Looking out to late 2020

The company declined to offer a detailed projection for full-year 2020 after having pulled its prior outlook. That forecast called for a modest acceleration over last year's 2.25% sales increase.

Management admitted that the 19% surge at the start the new fiscal year has made it likely that Kroger will exceed that initial outlook. Major variables like economic growth trends, the novel coronavirus, and consumer eating habits make it impossible to make informed projections about where sales growth will ultimately land.

Yet its latest results show that Kroger's digital and in-store selling platforms are essential shopping sources for consumers today. The supermarket giant also demonstrated that it can handle the stress from demand spikes and extra expenses while still boosting profitability. Those are all good signs for long-term investor returns.

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.