Kroger Rings Up Gains in Fight Against Wal-Mart, Amazon -- 2nd Update

By Heather Haddon Features Dow Jones Newswires

Kroger Co. boosted sales by improving online ordering and cutting prices at its stores, a sign of progress in the grocer's fight against rising competition from discounters and Amazon.com Inc.

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The Cincinnati-based chain said Thursday that sales grew by 1.1% in the quarter ended Nov. 4 at its established stores, topping expectations. Kroger expects sales to increase by a wider margin in the fourth quarter by that same metric, which excludes fuel sales.

Digital revenue more than doubled in the third quarter as Kroger added grocery delivery at 300 locations. Kroger plans to have 1,000 stores outfitted to fill online orders by the end of the year, and is paying for the e-commerce rollout and price cuts in part by setting tougher terms for its suppliers.

"The pieces that we have in place, when we do those things and manage our costs, obviously you will grow your business," said Chief Executive Rodney McMullen in an interview.

Kroger's shares were up 8% early Thursday afternoon. Shares in Costco Wholesale Corp. and other food retailers also climbed. Kroger's stock has risen nearly 30% in November, its best month since 1988, according to the WSJ Market Data Group.

Kroger is diversifying to attract new customers, including a focus on prepared foods to compete with restaurants. "We see anyone who sells food as competitors," Mr. McMullen said. "If you are eating, we want to serve you that meal."

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That quest for revenue is driven in part by intensifying competition for Kroger's core customers. Wal-Mart Stores Inc. is competing more aggressively for grocery dollars, sprucing up stores, slashing prices and expanding e-commerce offerings. Costco is expanding online sales, and it reported strong November sales growth on Wednesday. European discounters Aldi and Lidl have opened more U.S. stores this year. And Whole Foods Market has seen sales climb since Amazon acquired it this summer.

Some analysts questioned whether Kroger can sustain progress against emboldened competitors. "We still have our reservations about this story, " wrote Ken Goldman, senior analyst at J.P. Morgan, in a note to investors.

Kroger's other efforts to appeal to new customers include its first free-standing restaurant, a high-end floral line that made its debut for the holidays and a clothing line that Kroger plans to place in stores next year.

Kroger posted profits of 44 cents a share in the third quarter. Analysts polled by Thomson Reuters had expected earnings per share of 40 cents. The company reported a net profit of $397 million, or 44 cents a share, compared with $391 million, or 41 cents a share, a year ago. Revenue grew 4.5% to $27.75 billion.

--Imani Moise contributed to this article.

Write to Heather Haddon at heather.haddon@wsj.com

(END) Dow Jones Newswires

November 30, 2017 14:14 ET (19:14 GMT)