Kroger (KR +0.83%) last week posted its third-quarter earnings results. And the grocer didn't disappoint investors. Kroger logged its 44th consecutive quarter of growth and continued to steal market share from rivals.
After the announcement, executives held a conference call with analysts to provide context on the results. Here are five key points that management made during that chat (all quotes are courtesy of Seeking Alpha).
Gaining market share
"Our loyal household count grew at a much faster rate than total household growth, which incidentally was also up for the quarter. Loyal household growth is an important measure of our business because it lets us know how well we are connecting with our best customers." --Chief Operating Officer Mike Ellis
Not only was Kroger's strong 5.6% comparable store sales growth an improvement over the prior two quarters of the year, but it was also significantly higher than its rivals could manage. Wal-Mart and Target both booked flat comps in the third quarter. Whole Foods did a little better at 3.1%. But only Costco, with its 7% comps, ended up successfully defending its turf against Kroger's market share gains.
Store brands are doing well
"Our expansive corporate brands offering is resonating with customers seeking high-quality food at very good prices. In fact, our corporate brands had their best performance in several years in the third quarter. Our ability to deliver this combination of value sets us apart." --CEO Rodney McMullen
Kroger's store brands accounted for 27% of sales in the third quarter and, according to executives, experienced the highest quarterly growth and sales share in the past three years. That success is helping the grocer attract and keep more customers, particularly those value-conscious shoppers that are sticking to strict budgets.
Milk production could just be the start
"The dairy, our first ground-up manufacturing plant of any kind in 20 years, opened in May and began full production of fresh milk in August. We have been producing fresh milk, organic milk, juices and drinks and customer response has been very, very positive." --Chief Operating Officer Mike Ellis
In addition to using store brands, Kroger is also grabbing new customers through product innovation. Management chose to highlight their new Denver milk-processing plant as an example of that innovation at work.
The plant has resulted in a range of dairy products that now arrive at stores quicker and boast longer shelf life. And the fact that customers are enjoying the improvements means that more manufacturing plants could be in Kroger's future.
Scooping up organic sales
"Our natural foods department continues to lead with double-digit growth." --Chief Financial Officer Mike Schlotman
A big part of Kroger's market-thumping growth has come from its Simple Truth organic and natural foods brands. Those products outperformed again in the third quarter, leading all other departments. Management says that Kroger is the No. 2 seller of organic food in the nation (watch out Whole Foods) and that the company is fighting hard to attract and keep a huge portion of those shoppers.
Weather is the big question for the fourth quarter
"For the fourth quarter of fiscal 2014, Kroger expects identical supermarket sales growth excluding fuel of approximately 4% to 5%." --Chief Financial Officer Mike Schlotman
Weather is the reason why management said they are forecasting a wide range of potential sales gains in the holiday quarter. While most retailers see a pinch during severe weather, Kroger gets a boost as people stock up their pantries and eat at home more often while winter storms roll through. The fourth quarter of last year came with several storms that ended up raising Kroger's sales, and management has no way of knowing whether and when severe weather will hit this year.
Still, Kroger's third-quarter results provided plenty of good news for shareholders. Their company is leading the grocery industry as it returns to solid growth for the first time in years. Kroger is also benefiting from the surging natural and organic food trend. To the extent that the retailer can keep hold of these new customers, Kroger should have no problem continuing to post strong results like it did this quarter.
