(Bloomberg) -- Kroger Co. lifted its full-year sales guidance as the grocery-store operator benefits from consumers prioritizing spending on groceries and other essentials.
The Cincinnati-based grocer said it now expects comparable sales, excluding fuel, to rise 0.75% to 1.75%, up from the previous forecast of an increase of 0.25% to 1.75%.
Kroger attracted more customers and growing visits due to low prices and personalized deals, Chief Executive Officer Rodney McMullen said on a call with analysts.
The company’s shares rose as much as 6.7% in New York trading. The stock has climbed 13% this year through Wednesday’s close, less than the gain of the S&P 500 Index.
Kroger’s results are staying steady as resilient US consumers focus spending on food and staples. Many retailers have reported that shoppers are searching for deals and opting for lower-cost products such as store brands, while selectively purchasing newer discretionary items that offer value.
“Customers continue adjusting to the current economic environment,” McMullen said. “The reduction of excess savings built up during the pandemic, higher interest rates, and the effect of inflation are pressuring customers’ ability to spend.”
The consumption trend has helped essentials-focused retailers such as Walmart Inc. and Target Corp., while hurting operators selling big-ticket items such as Home Depot Inc.
Most price-sensitive consumers have felt the pressure for a while, but other shopper cohorts are also starting to make changes to their spending habits, McMullen said. Consumers are buying less, focusing on essentials and purchasing less expensive cuts of meat. Budget-conscious consumers are stocking up on groceries and other necessities at the beginning of the month.
Kroger is aiming to keep prices low by offering discounts and fuel rewards. Promotions are back to normal levels after the pandemic, and unit sales are improving, McMullen said. Shoppers are spending during the holidays, though their purchasing power tapers off by the end of the month.
Grocery inflation has moderated to historical ranges of lower single digits after hitting a four-decade high in 2022, though food prices have come under political scrutiny as Vice President Kamala Harris calls for a federal ban on grocery price gouging.
Some products, such as apples and potatoes, are cheaper than they were a year ago, and price competition has intensified. Restaurants are pitching value meals, and food companies are offering more promotions and selling limited-edition products to lure shoppers.
Inflation is “reasonably stable,” McMullen said. The company expects overall inflation to be around 1% across the store. Restaurant inflation is higher than grocery inflation, he said, and that is prompting consumers to make meals at home rather than dine out.
The grocer said comparable sales excluding fuel grew 1.2% for the second quarter, higher than what Wall Street analysts were expecting. Gross margin and adjusted earnings per share were also better than estimates. Digital sales rose 17% from a year ago.
Kroger managed to post a “major upside surprise on the gross margin line even in a more promotional grocery backdrop lately,” Oppenheimer analyst Rupesh Parikh wrote.
The company is defending its proposed $24.6 billion deal for Albertsons Cos. in court, with executives arguing that the acquisition would give the companies national coverage and allow them to compete more effectively against rivals such as Walmart, Amazon.com Inc. and Costco Wholesale Corp.
McMullen said the retail industry continues to be more competitive and that consumers are shopping at a wide range of operators such as Amazon, Costco and dollar stores while eating at restaurants.
(Updates with commentary from analyst call.)
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