Kroger raises sales forecast on inflation-resistant grocery demand

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By Uday Sampath Kumar

(Reuters) -Kroger Co raised its annual same-store sales and profit forecasts on Thursday, boosted by steady demand for groceries and household essentials, and its strategy to keep product prices relatively lower than rivals.

Kroger (NYSE:KR), like Walmart (NYSE:WMT) Inc, has been successful in using its scale and large store network to negotiate lower prices with suppliers, helping it pull in more inflation-weary customers to its stores and take market share away from smaller independent and specialty grocers.

But when inflation in food prices eases, which Kroger Chief Executive Officer Rodney McMullen expects will happen next year, investors fear the company could lose its edge over rivals and that sales growth could stall.

"A lot of investors are realizing the best times are probably behind Kroger, and that next year will be much more challenging for the company to generate top line growth," CFRA Research analyst Arun Sundaram said.

Kroger's shares fell 1.2%, after initially rising as much as 4% in premarket trading.

The company forecast fiscal 2022 adjusted same-store sales growth of 5.1% to 5.3%, compared with a 4% to 4.5% rise previously. It lifted its annual earnings per share forecast to between $4.05 and $4.15 from $3.95 to $4.05.

Its same-store sales, excluding fuel, climbed 6.9% in the third quarter ended Nov. 5, beating estimates of 4.5%, according to Refinitiv IBES data.

Kroger's blowout quarterly results and forecast are not expected to add to anti-competition concerns regulators have regarding the company's planned $25 billion acquisition of smaller rival Albertsons Cos Inc, according to Sundaram.

"Politicians will use the quarterly results as more ammo to push back on the merger, but the topics the FTC (U.S. Federal Trade Commission) is looking at are more to do with grocery market share and store divestment, rather than Kroger's top and bottom line this quarter."