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What’s happening: Shares of The Kroger Co. fell on Thursday, after the company released results for its first quarter.
What happened: The supermarket chain’s profits declined in the quarter but came in better than expected.
Kroger announced plans to pause its share buyback program to prioritise de-leveraging ahead of the proposed acquisition of smaller rival Albertsons Companies.
How were the results: The Cincinnati, Ohio-based company reported some growth in sales for the first quarter.
Why it matters: With customer spending budgets continuing to be under pressure in the US, people have flocked to stores offering higher deals and discounts. This has forced retails stores to stock more low-priced items, which impacts margins. Kroger has been cutting prices of its grocery items to offer deals that attract more footfall.
Kroger’s same-store sales, excluding fuel, grew by 0.5% in the first quarter, versus market expectations of 0.13%. Its digital sales rose by a little over 8%. The company’s FIFO gross margin rate, excluding fuel, slipped 7bps (basis points) year-over-year, amid constrained pharmacy margins and higher investments.
The company ended the quarter with $2.8 billion in cash plus temporary cash investments.
Kroger said it plans to continue paying dividends, while pausing its share buybacks to prepare for its $24.6 billion acquisition of smaller rival Albertsons. Regarding the regulatory hurdles on concerns over limiting competition, the company said it was confident of being able to defend the acquisition.
“The long-term investments we have made to strengthen and diversify our model enables us to manage economic cycles and gives us the confidence to deliver on our full-year outlook,” CEO Rodney McMullen said during the earnings call.
Management reiterated their full-year guidance for growth in identical sales, without fuel, between 0.25% and 1.75%, while projecting adjusted earnings of $4.30 to $4.50 per share and adjusted free cash flows between $2.5 billion and $2.7 billion.
How shares responded: Kroger’s shares rose as the results were reported but fell sharply later to close trading down 3.3% at $50.28 on Thursday. The stock has gained around 12% over the past six months.
What to watch: Investors will continue monitoring overall inflation rate and its impact on consumer spending. Markets will also watch progress in the Albertsons acquisition.
Context: The GBP/USD forex pair moved lower after the Bank of England kept interest rates unchanged.
Details: The Bank of England maintained its interest rates at a 16-year high of 5.25% during its latest meeting, with some members noting the decision to not cut rates was “finely balanced.” The decision to keep rates unchanged was not unanimous, with two members proposing to cut rates to 5%.
Data released on Wednesday showed UK’s inflation rate easing to 2% in May, hitting the central bank’s target for the first time since 2021. However, the bank’s officials remain concerned around persistent price pressures. Data from the Office for National Statistics showed services price inflation slowing to 5.7% in May, from 5.9% in April. The figure was, however, higher than market expectations of 5.5%.
Strength in the greenback also exerted pressure on the GBP/USD forex pair. The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained over 0.3% to 105.59 on Thursday.
The GBP/USD forex pair fell around 0.5% to 1.2659 on Thursday, after hitting a one-month low on Wednesday. London’s FTSE 100 rose 0.82% to settle at 8,272.46.
The EUR/GBP forex pair added more than 0.1% to reach 0.8457 on Thursday, after falling to a two-year low on Wednesday, following French President Emmanuel Macron’s decision to call for a snap parliamentary election.
What to watch: Investors await the release of economic data on retail sales, manufacturing PMI and services PMI from the UK today. Retail sales in the UK, which fell 2.3% in April, are expected to grow by 1.5% in May. Analysts expect the UK manufacturing PMI to rise slightly to 51.3 in June, from 51.2 in May, while services PMI is projected to edge higher to 53 in June, from 52.9 in the prior month.
Other Markets: US trading indices closed mixed on Thursday, with the S&P 500 and Nasdaq 100 down by 0.25% and 0.79%, respectively, and the Dow Jones index up by 0.77%.
Russian troops failed to advance in eastern Ukraine, with the country receiving further military and financial aid. The news sent the safe-haven US dollar index slightly higher in forex trading this morning.
Japan’s au Jibun Bank manufacturing PMI fell to 50.1 in June, versus a final reading of 50.4 in May. The region’s factory activity expanding for the second straight month lent some support to the JPY/USD forex pair.
Australia’s Judo Bank composite output index fell to 50.6 in June, from 52.1 in the prior month. However, the region’s private sector signalling expansion for the fifth consecutive month sent the AUD/USD pair higher in forex trading this morning.
Colombia’s imports grew by 18.1% year-over-year to $5.839 billion in April. This being the first gain after 17 months of decline lent some support to the COP/USD forex pair.
The EIA said US crude stockpiles contracted by 2.547 million barrels in the latest week, more than market estimates of 2 million barrels, sending the WTI crude oil prices higher in forex trading this morning.
UK’s public sector net borrowing and composite PMI, France’s business confidence, business climate indicator, composite PMI, manufacturing PMI and services PMI, Germany’s composite PMI, manufacturing PMI and services PMI, Eurozone’s composite PMI, manufacturing PMI and services PMI, India’s value of loans, deposit growth, foreign exchange reserves and Reserve Bank of India’s monetary policy meeting minutes, Mexico’s economic activity index, Canada’s retail sales, industrial producer prices and raw materials price index, US composite PMI, manufacturing PMI, services PMI, existing home sales, natural gas stocks change, Baker Hughes crude oil rigs and Baker Hughes total rigs, China’s foreign direct investment, Spain’s consumer confidence indicator, as well as Brazil’s Federal tax revenues.
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