Shipping woes, discounts bite into Kroger’s margins By Reuters

(Reuters) -U.S. supermarket chain Kroger (NYSE:) Co reported a slide in a main measure of profitability on Friday, blaming discounts, wastage and this year’s squeeze on global supply chains for a dip that sent its shares tumbling 6.4%.

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

Kroger’s gross margin – the revenue left after deducting the costs of goods sold – fell to 21.4% in the second quarter, from 22.8% a year earlier.

Packaged food makers and grocers have also reeled under higher costs of ingredients, such as wheat, meat and edible oils, forcing them to raise prices.

“The messaging (from Kroger) was that labor and logistics were challenges but that some inflation – notably on meat – was not fully passed on to consumers,” J.P. Morgan analysts wrote in a note.

But a boom in at-home cooking during the pandemic helped the company forecast a smaller decline in annual same-store sales of 1% to 1.5%, compared with a 2.5% to 4% decline expected previously. Analysts polled by Refinitiv on average expect a 2.9% decline.

It also raised its annual adjusted profit forecast to between $3.25 and $3.35 per share, after exceeding market expectations for quarterly sales and earnings.

“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 company has launched in Florida “Kroger Delivery Savings Pass,” a service that offers unlimited delivery for $79 annually.