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Shipping woes, discounts bite into Kroger's margins, shares fall

Stock Markets Sep 10, 2021 01:02PM ET
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© Reuters. FILE PHOTO: A logo of Kroger is displayed on a monitor above the floor of the New York Stock Exchange shortly after the opening bell in New York, U.S., December 5, 2017. REUTERS/Lucas Jackson/File Photo
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By Praveen Paramasivam

(Reuters) -U.S. supermarket chain Kroger (NYSE:KR) Co reported a fall in a main measure of profitability on Friday, blaming wastage, discounts and this year's squeeze on global supply chains.

The company's shares tumbled as much as 9.1%.

U.S. retailers have been spending more on shipping and labor this year, as pandemic-driven port congestion and a shortage of drivers increase the cost of stocking up their shelves.

"Consistent with many retailers, we experienced supply chain constraints and increased warehouse and transportation costs during the quarter," Kroger Chief Financial Officer Gary Millerchip said on an earnings call.

"We expect supply chain costs to remain elevated in the second half of the year."

Kroger's gross margin - the revenue left after deducting the costs of goods sold - was 21.4% in the second quarter, compared with 22.6% in the first.

Packaged food makers and grocers that sell their own private-label products have also reeled under higher costs of ingredients, such as wheat, meat and edible oils, forcing them to raise prices and warn of future increases as well.

"The messaging (from Kroger) was that... some inflation – notably on meat – was not fully passed on to consumers," J.P. Morgan analysts wrote in a note.

However, a boom in at-home cooking during the pandemic helped the operator of Ralphs, Dillons and Fred Meyer stores raise its annual adjusted profit forecast to between $3.25 and $3.35 per share, ahead of analysts' expectations, after topping second-quarter sales and earnings estimates.

"As food-at-home demand moderates, these (margin) headwinds could be more pronounced," CFRA Research analyst Arun Sundaram said.

To attract new customers and turn existing ones into more loyal shoppers, the chain has launched in Florida "Kroger Delivery Savings Pass," a service that offers unlimited delivery for $79 annually.

Shipping woes, discounts bite into Kroger's margins, shares fall

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Comments (1)
Dominic Mazoch
Dominic Mazoch Sep 10, 2021 3:33PM ET
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I used to love to go Krogering. Now I hate it.You need GPS to find stuff in the stores. The wine and beer are in the middle of the store, so you have to pass through it to get from the fruit end to the rest of the store. and it is hunt and peck to find the in-house stuff. With sodas, they are way back in the aisle. For cold cereals, they are not at eye level. KR is charging the majors prime shelf space. (Could be the othet way around. Either policy should be made known on thevshelf.) U scan lines down. And if they are up, not enough space to price and bag products.KR BOD to store managers need to get out of the office and take a turn stocking or being a cashier. Or be an UNDERCOVER BOSS: THE CUSTOMER. Or maybe the HQ in Cindy needs a personal refresh.
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