Kroger trims sales target as shoppers pull back, sticks to profit forecast

By Sanskriti Shekhar and Juveria Tabassum

Sept 11 (Reuters) - ‌U.S. grocer Kroger cut ​its annual ​identical sales forecast on Friday, citing slower consumer spending, but maintained its profit target as cost controls and higher-margin businesses helped cushion the impact.

The forecast cut echoes recent warnings from ‌bigger rival Walmart and raises concerns about the health of the American consumer as ⁠they prioritize value amid economic uncertainty, even on everyday purchases such as groceries and household items.

Still, shares of the company reversed premarket ‌losses to rise about 3% in ‌morning trading as investors looked past the sales guidance and focused on Kroger's earnings beat and confidence in full-year profitability.

"A near flat headline comp (comparable sales figure) is further fuel to the 'Food Fight' fire, yet ​Kroger appears to be managing the choppy backdrop relatively well given the reiterated profit guide," Evercore ISI analyst Greg Melich said.

Since new Kroger CEO Greg Foran joined in February, he has focused on tightening ⁠sourcing, simplifying operations as well as keeping prices low, accelerating store openings and expanding online sales with faster delivery and AI-driven personalized shopping.

On an ​adjusted basis, the company posted quarterly profit of $1.09 per share, compared with estimates of $1.06, helped by progress in its higher margin e-commerce and retail media businesses.

Kroger executives on ​its earnings call also said demand at its pumps outpaced ‌the broader industry as customers cashed in on its tweaked rewards points system to save money amid higher prices.

U.S. consumer sentiment, however, weakened in August and retail sales ⁠unexpectedly declined in July for the first time in nine months, as middle- and lower-income households increasingly prioritized essentials and value purchases in the face of persistent inflation.

"Customers remained under pressure and that has affected the industry broadly, unit growth ⁠has slowed since the start of the year," Foran said on the call.

Kroger also said lingering effects from a cyclospora outbreak ​on its produce reduced second-quarter identical sales excluding fuel by about 35 basis points.

It expects full-year identical sales without fuel to increase in the range of 0.2% to 0.8%, compared with its prior forecast of a 1% to 2% rise.

The ‌company's updated sales forecast includes a roughly 140-basis-point headwind from the Inflation Reduction Act, which lowered prescription drug prices for Medicare beneficiaries, impacting revenue at its pharmacies. ‌Walmart in its recent quarterly results also flagged a similar hit, after reporting its slowest sales growth in six years.

Second-quarter ⁠identical sales growth for the three months ended ‌August 15 slowed to 0.2% ​from 3.4% a year ago, and missed estimates of 0.9% growth, according to data compiled by LSEG.

(Reporting by Sanskriti Shekhar and Juveria Tabassum in Bengaluru; Editing by Christian Plumb and ‌Devika Syamnath)

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