Kroger sees signs inflation is starting to pick up

The supermarket chain 'operates the best when inflation is about 3% to 4%'

Kroger Co. says inflation is starting to creep up, but that it’s too early to tell if higher prices are permanent.

The Cincinnati-based supermarket operator says it is planning for inflation of 1% to 2%, but that prices are increasing at a faster pace in its fresh-food departments.

Ticker Security Last Change Change %
KR THE KROGER CO. 39.79 -0.10 -0.25%

"We are seeing, as I think would be consistent across the industry, some increasing cost flows starting to flow through in grocery," Kroger CFO Gary Millerchip on the company’s first-quarter earnings call on Thursday.  

He noted produce and meat prices tend to be more volatile in the short term. 

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The Bureau of Labor Statistics’ consumer price index released last week showed at-home food prices rose 0.4% in May, matching the increase for April. 

The index for meats, poultry, fish and eggs was up 1.3% month over month in May. The increase was mostly due to a 2.3% jump in beef prices. Fruit and vegetable prices were flat as the index for fresh vegetables rose 0.5% while the index for fresh fruit declined 0.3%. 

Kroger CEO William McMullen said it was "hard to tell" if the price increases would continue once the supply chain disruptions caused by COVID-19 were remedied. 

Regardless, McMullen says Kroger is ready for any environment and that his company "operates the best when inflation is about 3% to 4%."

He added that inflation that is not driven by "true cost changes" results in the company’s in-house brands taking share from large national brands as shoppers look for lower-cost substitutes. 

Kroger on Thursday reported first-quarter net earnings of $140 million, or $1.19 per share, above the $1.01 that analysts surveyed by Refintiv were expecting. Revenue fell 0.6% to $41.3 billion.

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The company raised its annual profit guidance to between $2.95 and $3.10 per share, compared with its prior range of $2.75 to $2.95.

Kroger shares were up 18% this year through Wednesday, compared with the S&P 500’s 12% gain.