The Kroger Co. saw its digital sales grow 31% during the second quarter of fiscal 2019. The retailer said it expects digital sales to moderate during the rest of the year as it laps growth initiatives related to Ship and Home Chef.
“We’ve also expanded our digital coverage area to reach 95% of our customers,” says William Rodney McMullen, chairman and chief executive officer, during a conference call with analysts Sept. 12. “This means that 95% of our customers who shop Kroger at a brick-and-mortar store can also shop with us for pickup or delivery.
“Importantly, we are starting to see improving operating profit trends in our digital business. Our digital business is becoming less of a headwind, which is an important inflection point, and we continue to invest in new capabilities to support our transition to seamless. However, I do want to note, this is still a significant investment for the company.”
Kroger’s net income for the quarter ended Aug. 17 totaled $297 million, equal to 37c per share on the common stock, and down compared with the same period of the previous year when the retailer earned $508 million, or 63c per share.
Items that pressured earnings included a last-in-first-out (LIFO) charge of $30 million during the quarter, which was $18 million higher than the charge during the second quarter of fiscal 2018. The company’s adjusted corporate tax rate also rose to 23.9%, which compared with 18% the year earlier.
Sales for the quarter ticked up slightly to $28,168 million from $28,014 million the year prior.
“Kroger delivered our best identical sales results since the launch of our transformational plan,” McMullen says. “Our internal customer measures are improving even faster than our identical sales growth. There is always a lag between improving the customer experience and when the customer will reward us.
“We continue to make significant investments to redefine the grocery customer experience. We are building a platform of seamless experiences to serve customers anything they want, anytime they want, anywhere they want. We know the seamless experience is essential to the customer experience, both today and tomorrow, which is why we continue to invest heavily in our capabilities in this area.”
Initiatives McMullen sees propelling Kroger in the future include its partnerships with Ocado and Walgreens. This past July Kroger and Ocado announced plans for a new customer fulfillment center in Forest Park, Ga. On Sept. 12, it was announced that another fulfillment center will be located in Dallas.
“We know Ocado’s value is not just its current capabilities but also in how quickly the company is able to innovate to serve a rapidly developing online consumer market,” McMullen says. “Ocado’s technology team of over 1,400 software engineers brings a huge depth of talent and a long track record of innovation to growing opportunities in online grocery retail.”
The company also will expand its relationship with Walgreens this fall. Thirty-five Walgreens stores in Knoxville, Tenn., will sell a selection of Kroger’s private label brands.
For the first six months of fiscal 2019, Kroger’s net income fell to $1,069 million, equal to $1.32 per share, down from $2,534 million, or $3.05 per share, during the first six months of fiscal 2018.
Sales for the period were $65,419 million, a slight drop from $65,735 million in fiscal 2018.