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Kroger profits soar despite rising expenses, inflation

CEO: 'Eating at home is more affordable'
Posted at 4:52 PM, Mar 03, 2022

CINCINNATI — Some companies see inflation as a threat to their business. The Kroger Co. is treating it like a competitive advantage.

Shares in the Cincinnati-based grocery chain jumped 11% to $54.7 Thursday after CEO Rodney McMullen told investors it is growing by helping customer balance their budgets.

“What the customers are telling us is that they’re changing their spend behavior outside of food,” McMullen said. “They have also found that eating at home is more affordable than going out to restaurants.”

Kroger posted an operating profit of $965 million in the fourth quarter on revenue of $33 billion. Both were better than expected by Wall Street analysts. The company also improved its outlook for 2022, by predicting identical store sales growth of between 2% and 3%.

McMullen said the projection is based on Kroger’s proven ability to use fuel points and targeted discounts to keep customers happy despite rising prices, while introducing prepared foods and premium items to boost profitability.

“We operate successfully in every environment, whether it’s inflationary or deflationary,” McMullen said. “We’re doing everything we can to minimize the impact on our customers … and what we find is, once we get a new customer, we’re able to move them up the loyalty ladder over time.”

Kroger did face higher expenses in the quarter, thanks to the rising cost of the products it sells and higher labor expenses. Kroger recently settled a strike in Colorado and faces contract talks this year in nine cities, including Los Angeles and Seattle, where union locals joined with their Denver counterparts to commission a survey that said 63% of Kroger employees can’t cover basic monthly expenses.

“We are actively proposing generous wage increases over the life of the various contracts we are negotiating,” said Chief Financial Officer Gary Millerchip told Wall Street analysts this morning. “We are also communicating to local unions that coming to the table with unrealistic proposals, proposals that do not balance associate investments with keeping groceries affordable for our customers, is untenable.”