Kroger Sales Beat Estimates, But Pharmacy Unit Weighs on Profit

(Bloomberg) -- Kroger Co. delivered an uneven third-quarter performance with strong sales but weaker profitability, which wasn't enough for the supermarket chain's skeptical investors.

• Same-store sales excluding fuel -- a key metric -- rose 2.5% in the quarter, beating projections compiled by Consensus Metrix. Still, its adjusted earnings per share fell just shy of estimates.

Key Insights

• Kroger's pharmacy business has weighed on profitability and that was the case again this quarter, with gross margins excluding fuel narrowing 24 basis points. The company also took a three-cent charge against earnings due to an adjustment to a pharmacy contract, which caused it to miss the adjusted profit estimates compiled by Bloomberg.
• The nation's biggest traditional supermarket chain -- which reiterated its full-year sales and profit forecasts for this year and for 2020 -- is working to fend off challenges from discounters including Walmart Inc. and Aldi, plus regional competitors. It's trying to grab more shoppers with experiments like opening an upscale food hall in its Cincinnati hometown and partnering with a ghost-kitchen startup to deliver prepared meals in a few cities.
• With its core business under pressure, Kroger is pursuing new areas of growth like advertising and personal finance that it has said should deliver as much as $150 million in incremental profits next year. The supermarket chain has data on the purchasing habits of 60 million households, which is valuable to big consumer-product makers like Kraft Heinz Co.

Market Reaction

• Kroger shares jostled between slight gains and slight losses in New York trading Thursday.

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To contact the reporter on this story: Matthew Boyle in New York at mboyle20@bloomberg.net

To contact the editors responsible for this story: Crayton Harrison at tharrison5@bloomberg.net, Jonathan Roeder, Anne Riley Moffat

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