Kroger’s stock drops after profit tops expectations but sales come up short

Net sales grew 1.3% to $45.17 billion but were below the FactSet consensus of $45.26 billion. Excluding fuel, sales rose 3.5%.

For more, read the Kroger’s earnings preview.

Meanwhile, identical sales without fuel rose 3.5%, which topped the FactSet consensus for a 3.4% rise. Kroger identifies identical sales as sales to retail customers from stores that operate continuously for five quarters.

The stock
KR,
-4.45%
slumped as much as 7.7% moments after the open before paring losses to be down 4.4% in morning trading. The pullback comes after it rallied 3.8% over the past five sessions.

“[Kroger] delivered [first-quarter] results that seem very much in line with its expectations, but we sense investors were expecting a bit more,” Wells Fargo analyst Edward Kelly wrote in a note to clients.

Kroger said its gross margin rate improved from a year ago due primarily to lower supply-chain costs and the effect of the terminated agreement with Express Scripts, which was partially offset to higher shrink and increased promotional price investments. Kroger had terminated a pharmacy provider agreement with Express Scripts, a Cigna Corp.
CI,
+2.41%
subsidiary, on Jan. 1.

The company said it expects to continue to pay its quarterly dividend, and expects to increase the dividend over time, but the share-repurchase program is still paused as reducing debt is a priority following the proposed $25 billion merger with rival Albertsons Cos.
ACI,
-0.43%.

For fiscal 2023, the company continues to expect adjusted EPS of $4.45 to $4.60 and same-store sales growth of 1% to 2%.

Kroger’s stock has gained 1.3% year to date, while the Consumer Staples Select Sector SPDR exchange-traded fund
XLP,
+0.53%
has slipped 0.4% and the S&P 500
SPX,
+0.51%
has advanced 14.4%.