Kroger Sends Inflation Message as Gas Prices Begin to Come Down

With around 10% of the average consumer’s disposable personal income spent on food, it’s fair to say that, despite what folks have to say about core inflation, food prices have an impact on consumer spending.

For that reason and several others, we’re digging into quarterly results and guidance comments on Thursday morning from Kroger (KR).

But before we get going, we’ll preface things by sharing that Kroger completed its quarter on April 30, and oil has fallen sharply since then. As of Thursday, oil prices are down more than 30%, with a hefty chunk of that decline in the last week.

Here we go, in the now-familiar statement (in italics) and reaction format:

The customer is under pressure. Higher gas prices and reduced SNAP benefits are squeezing budgets. Customers are managing spend carefully and shopping with real intent. That pressure is showing up in the market. Food at home growth decelerated 100 basis points compared to the last quarter… Looking ahead, we expect inflationary pressure to increase as the year progresses, reflecting the broader macro environment.

With gas prices coming down and poised to fall further, the pain for consumers should begin to lessen, freeing up incremental disposable spending power. However, our thinking is it will take some time for the existing inflation pressures to flow through the system. That means we will be paying close attention to input and output cost comments in next week’s June Flash PMI report and other upcoming PMI data.

We saw some unexpected pressure in transportation from higher diesel costs that wasn’t built into our original expectations for the year… Transportation was an unexpected headwind, resulting in 15 basis points of pressure in the quarter, as higher oil prices impacted our fuel costs. We are managing this closely and expect some pressure to persist, while oil markets remain elevated.

Not a surprise about transportation costs, but as we can see in the chart below, diesel prices are joining gas prices in moving lower:

Recently, we deepened several partnerships with Google’s Display and Video 360 platform, advertisers can now use KPMs retail signals to reach audiences across YouTube and YouTube TV, with SKU level conversion reporting available for the first time. We’re also the first retail media network set to launch a self-service collaboration with TikTok, giving brands direct access to KPM audiences within one of today’s most influential platforms. Looking ahead, we are expanding our AI powered capabilities to support real time optimization, predictive budget allocation, and faster audience creation, positioning AI as a key enabler of both performance and scalability.

This is an interesting data point for our Digital Lifestyle investing theme and one that speaks to the expansion of Google’s (GOOGL) YouTube and Amazon’s (AMZN) Prime Video into shopping. We haven’t seen Netflix (NFLX) make this move, but odds are it will only be a matter of time as it leans further into digital advertising.

Kroger’s comment is also one that speaks to the different ways companies are leveraging as well as expanding their use of artificial intelligence. To us, that’s another check for rising enterprise adoption and usage, a key element we track when it comes to the Pro Portfolio’s digital infrastructure plays that range from Nvidia (NVDA) and Marvell (MRVL) to Eaton (ETN) and Arista Networks (ANET), and others in between.

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At the time of publication. TheStreet Pro Portfolio was long AMZN, ANET, ETN, GOOGL, MRVL and NFLX.