Kroger's quarterly profit, sales top estimates on private-label strength

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(Reuters) – U.S. supermarket chain Kroger Co (N:) topped fourth-quarter profit and sales estimates on Thursday, boosted by strong demand for its high-margin private-label brands, sending its shares up as much as 7.2%.

The company’s shares touched a three-year high of $33.18, even as broader markets dipped as coronavirus fears hit California.

The company maintained its forecast for fiscal 2020, that excluded any impact from the global epidemic, which has infected thousands and killed over 3,000, including 11 in the United States.

Kroger has limited supply chain exposure in China and sources a majority of its products domestically, Chief Executive Officer Rodney McMullen said.

“It’s really too early for us to have a sense of how customers’ overall behavior will change and what the impact will be,” Chief Financial Officer Gary Millerchip told analysts.

“I think you’ve seen more in response to the media activity and some of the advice out there in the market of customers starting to spend more on things like water and hand sanitizer, hand soap, paper.”

For the fourth quarter, the company was able to boost sales under its strategy to add a wide selection of high-margin private-label brands, which comprises everything from plant-based meats to its own line of seltzer waters at competitive prices.

As part of its “Restock Kroger” program, the supermarket chain is attempting to gain market share though improved sales by stocking more of its own brands on shelves, while also improving store layouts.

Kroger said its “Our Brands” private label saw its best year ever, with sales more than $23.1 billion in 2019.

It has also been improving delivery services and digital presence to compete better in a grocery space dominated by retail giants Walmart (N:) and (O:).

Excluding one-time items, Kroger earned 57 cents per share, beating analysts’ estimate of 55 cents, according to IBES data from Refinitiv.

Gross margin came in at 22.1% for the quarter, compared with expectations of 21.91%.

Sales rose 2.1% to $28.89 billion, beating analysts’ estimate of $28.87 billion. Comparable sales rose 2%, excluding the impact of fuel prices. Analysts had expected a 2.09% growth.

Net earnings attributable to Kroger rose 26% to $327 million.

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