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Kroger Beats Top-Line Estimates, but Comps Decline—Again

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Kroger’s sales exceed expectations

Kroger’s (KR) top line improved 4.9% YoY (year-over-year) in fiscal 1Q18, reaching ~$36.3 billion, which beat the Wall Street expectation of a 3.4% increase to ~$35.8 billion.

Total sales excluding fuel rose 2.9%, primarily benefiting from Kroger’s recent merger with ModernHEALTH. The company recorded strong growth through its digital channel. New digital customers added increased 30%, while digital visits rose more than 30% during the quarter. Organic and natural products remained the highest growth products and continued to drive the top-line.

Same-store sales (excluding fuel) declined 0.2%, an improvement from fiscal 4Q17, when comps (comparable same-store sales) fell 0.7%. But this was the company’s second consecutive quarterly decline in comps.

Kroger’s visits per household remained flat while the number of households visiting Kroger’s stores rose in fiscal 1Q18. Basket size and price per unit, however, recorded declines. Loyal households continued to grow, recording a 3.2% growth in 1Q18 over 1Q17.

Deflationary pressures were less severe and came in at 20 basis points without fuel.

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Peer performances

Wal-Mart (WMT), Kroger’s closest competitor in most markets, recorded solid comps when it reported its first-quarter results on May 18. Its sales comps grew 1.4% in North America, beating the consensus expectation of a 1.3% increase. The retailing giant’s total sales were up 1.4%.

Whole Foods (WFM) also reported its latest quarterly results at the beginning of May. Its comps stayed negative for the seventh consecutive quarter, while its total sales grew 1.1% during the quarter. Notably, the organic and natural food pioneer was acquired by Amazon.com (AMZN) one day after Kroger released its fiscal 1Q18 results.

Investors looking for exposure to Kroger can choose ETFs like the First Trust Consumer Staples AlphaDEX Fund (FXG), which has about 0.8% in KR.

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