Kroger raises lower end of annual sales forecast as cheap groceries lure shoppers

By Ananya Mariam Rajesh

(Reuters) -Kroger raised the lower end of its annual sales forecast after topping quarterly results on Thursday, as its efforts to offer freshly sourced groceries at lower prices helped draw customers looking to stretch their dollars.

Shares of Kroger, whose $25-billion mega deal with smaller rival Albertsons is under antitrust review, rose nearly 4%.

U.S. consumers still have tight household budgets with little room to splurge, even on food, pushing them to buy items at the best possible price in the market as they also look to eat at home more.

"Conscious customers are buying more at the beginning of the month to stock up on essential items in groceries. And then as the month progresses, they are more cautious with their spending," CEO Rodney McMullen said on a post-earnings call.

Kroger has also offered promotions to attract deal-hunting consumers and keep up with competition from bigger rival Walmart, which also raised annual forecasts as demand for inexpensive essentials remains strong.

"Regardless of where the consumer fits in the income spectrum, they are trying to... save some money," Telsey Advisory Group analyst Joseph Feldman said.

Since late August, the U.S. Federal Trade Commission, along with several states, went to trial to block the Kroger-Albertsons deal, saying it would raise prices and lead to less bargaining power for unionized grocery workers.

"As we near the close of the FTC's preliminary injunction hearing, we are confident in the facts and the strength of our position. The food industry has always been competitive and will continue to be after this merger," McMullen said.

The company has already laid out plans to lower grocery prices by $1 billion after the merger.

Its second-quarter identical sales, excluding fuel, rose 1.2%, compared with an average LSEG estimate of 0.93% growth.

Excluding items, Kroger posted an adjusted profit of 93 cents per share, topping an estimate of 91 cents per share.

It now expects fiscal 2024 identical sales, excluding fuel, to grow between 0.75% and 1.75%, compared with its prior forecast of 0.25% to 1.75% growth.

"Clearly, the business is not cratering under the weight of competition and price investments, as some investors have feared," J.P.Morgan analyst Ken Goldman said.

(Reporting by Ananya Mariam Rajesh in Bengaluru; Editing by Pooja Desai)