Kroger’s Profit Margin Impacted By Shipping Delays And Discounts

Kroger Co, the US supermarket chain, reported a drop in its main measure of profitability on Friday. It blamed discounts, wastage, and the significant squeeze on global supply chains as being the causes of the drop in profitability. This plunge sent Kroger’s shares plummeting by 6.4 per cent.

US retailers spent more this year on shipping and labor, due to pandemic induced port congestions as well as a shortage in drivers which effectively increasing the cost of stocking their shelves.

Kroger’s gross margin, which is the residual revenue after subtracting the cost of goods sold, fell to 21.4 per cent during the second quarter compared to 22.8 per cent for the same period a year ago.

Grocers and package food manufacturers have also been hit by higher prices for ingredients such as those for wheat and edible oils. This has forced them to increase their prices which in turn are predicted to hit sale volumes.

In a note, J.P. Morgan analysts stated that Kroger’s messaging was that logistics and labour situations during the quarter were difficult, but that some inflation – particularly that for meat – was not fully passed on to consumers by the retailer.

The company saw a rise in home cooking during the pandemic, which helped to forecast a smaller drop in annual same-store sales. This is in contrast to the 2.5 per cent to 4.4 per cent that the company had expected previously. Refinitiv polled analysts and had predicted a 2.9 per cent drop.

After exceeding market expectations regarding quarterly earnings and sales, it also increased its annual adjusted profit forecast by between $3.25 and $3.35 per share.

Arun Sundaram, CFRA Research analyst, said that as food-at-home demand declines, these (margin headwinds) could become more prominent.

The company launched the Florida “Kroger Delivery Savings Pass” service to attract new customers as well as keep existing customers loyal. It offers unlimited delivery at $79 per year.

(Adapted from Reuters.com)

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