(Reuters) -Kroger on Thursday cut its annual sales forecast, pinched by moderating food and grocery prices at a time when demand has come under pressure from consumers keeping a tight lid on spending.
Its same-store sales for the third quarter were also slightly below market expectations, sending Kroger’s shares more than 1% lower in early trading.
Food prices are now moderating, with grocery inflation trending lower throughout the quarter as fresh food products go into deflation mode while packaged food items hit the ceiling on price hikes.
The lower prices have started to limit some of the sales benefits enjoyed by food retailers over the past year, while consumers become increasingly thrifty and pick cheaper alternatives even in groceries.
That resulted in a 0.6% drop in quarterly same-store sales, without fuel, while Wall Street expected a 0.5% drop.
“It was a very straightforward report, very much in-line. No real surprises … Of course, you’d like to see a little bit better strength, but it totally makes sense, with what’s going on in the environment from the disinflation standpoint,” said Telsey Advisory Group analyst Joseph Feldman.
Still, Kroger’s tight rein on expenses, increased demand for higher-margin private-label items and a let-up in supply chain snags have helped protect profits.
The company lifted the lower end of its annual per-share adjusted earnings target by 5 cents, to between $4.50 and $4.60, with a midpoint of $4.55. Analysts on average expect $4.53, according to LSEG IBES data.
It expects fiscal 2023 identical sales, excluding fuel, to grow 0.6% to 1%, down from its prior forecast toward the low end of a 1% to 2% rise. Analysts estimate a 0.9% increase.
The grocer, which has struck a nearly $25 billion deal to buy smaller rival Albertsons, posted an adjusted per-share profit of 95 cents for the quarter, beating estimates of 91 cents.
(Reporting by Deborah Sophia in Bengaluru; Editing by Devika Syamnath)
