On Thursday, Kroger, one of the foremost players in the grocery retail sector, raised the midpoint of its full-year identical sales forecast following the release of its second-quarter financial results, which revealed a mixed performance. This adjustment demonstrates the company's confidence that consumers will continue to prioritize spending on essential items, primarily food. Kroger now anticipates that its identical sales, excluding fuel, will experience growth between 0.75% and 1.75% for the year.
This update raises the lower-end of the prediction from the previous estimate of 0.25%. Analysts surveyed by Capital IQ had been forecasting identical sales growth of approximately 1.1%. As a direct response to this information, Kroger's shares rose by 6% in afternoon trading, a reflection of the market's optimism regarding the company's prospects. During a conference call with analysts, Chief Financial Officer Todd Foley expressed cautious optimism regarding the sales outlook for the second half of the year.
He stated, "We are cautiously optimistic about our sales outlook for the second half of the year and expect customers to continue prioritizing food and essentials." Foley elaborated on the company's strategic approach by highlighting their developments in merchandising plans designed to boost customer engagement, encourage spending, and enhance unit volumes. Kroger also increased its capital expenditure guidance to between $3.6 billion and $3.8 billion, up from an earlier range of $3.4 billion to $3.6 billion.
According to Foley, this revised capex outlook encompasses both major and minor store projects, reflecting a commitment to growth and investment in its operational capabilities. For adjusted earnings per share, the company continues to expect a range between $4.30 and $4.50, aligning closely with the Capital IQ-polled consensus of $4.44. In terms of revenue for the second quarter, Kroger reported a slight increase to $33.91 billion for the three months ending on August 17, compared to $33.85 billion during the same period last year.
However, this figure fell short of the average analyst estimate of $34.12 billion. Adjusted EPS came in at $0.93, down from $0.96, but exceeded the market’s expectation of $0.91. Interestingly, identical sales excluding fuel recorded a growth of 1.2%, surpassing analyst expectations of 0.9% for the quarter.
While sales growth exceeded internal forecasts, profitability faced challenges attributed to product mix pressures, particularly linked to strong sales of glucagon-like peptide-1 (GLP-1) drugs. Chief Executive Rodney McMullen confided in analysts that the impact of these weight loss drugs would likely influence Kroger's overall performance throughout the remainder of the year.
However, he mentioned that the company is "ramping up" their efforts related to vaccines, which is anticipated to help mitigate some of the pressures exerted by GLP-1 drugs in the latter half of the year..