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Kroger’s Comps Growth Lags behind Competitors’

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Kroger’s comps stay positive but miss expectations

Kroger’s (KR) sales comps continued to improve in the second quarter, and were positive for a fifth straight quarter. Excluding fuel, Kroger’s comps grew 1.6% in fiscal Q2 2018 but missed analysts’ estimate of a 1.9% increase. In comparison, retailers Walmart (WMT) and Target (TGT) recorded stronger comps growth, of 4.5% and 6.5%, respectively. Target recorded its highest-ever traffic jump of 6.4% during the quarter.

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Key sales drivers

The growth of Kroger’s in-house brands continued to outpace the company’s overall comps growth. Its Simple Truth and Simple Truth Organic lines grew ~15% YoY (year-over-year) during the second quarter. Private brands accounted for 28.2% of Kroger’s unit sales and 26.5% of its dollar sales (excluding fuel and pharmacy).

The company plans to include Simple Truth, which now sees $2 billion in annual sales and is America’s largest natural and organic brand, in its first international pilot with Alibaba’s Tmall.

Kroger’s digital sales grew ~50% during the quarter, driven by ClickList, Instacart home delivery, and the new Kroger Ship platform. However, the growth marked a slowdown from the previous quarter’s 66% spike. In the second quarter, Walmart recorded stellar digital sales growth, of 40%.

Investors seeking exposure to Kroger could consider the First Trust Consumer Staples AlphaDEX ETF (FXG), which invests 3.7% of its portfolio in the company. In the next part, we’ll discuss investors’ reaction to Kroger’s Q2 results.

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