Coronavirus: Kroger sales surge, but what's next (and what about P&G and Charmin toilet paper)?

Kroger disclosed Wednesday that shopper stockpiling during March drove monthly sales to shoot up roughly 30% excluding fuel – an unprecedented jump caused by the shopping frenzy amid the new coronavirus pandemic outbreak.

The nation's largest supermarket operator said February sales were already strong when COVID-19 fears began to push them even higher. 

"Sales sharply accelerated in March...This was driven by dramatically heightened demand in the middle of the month as customers were stockpiling, which then tapered, but remained higher than normal in the final week, as customers adjusted to the new dining, work and travel restrictions," Kroger said.

Kroger said it was "too early to speculate what will emerge as the 'new normal'" regarding future customer eating habits or the effect on sales in future periods. In other words, the Cincinnati-based grocer isn't sure if this is a one-time thing or if the crisis could permanently change shopper eating and spending habits.

Wednesday's eye-popping sales disclosure highlights the uncertainty emerging around two of Cincinnati's most premier employers: Kroger and Procter & Gamble, which has also seen outsize demand for its products, like Charmin toilet paper.

Sure, sales have surged – but how long can it last and what will come afterward? With America is flirting with a potentially nasty recession in 2020, will Kroger and P&G thrive or just survive?

Both companies have strained to meet the unprecedented spike in demand: P&G has stepped up production and focused more effort in churning out high-demand items like Charmin toilet paper and Bounty paper towels; Kroger is scrambling to hire workers to keep shelves stocked and stores clean – even as many companies are laying off employees en masse.

The consensus appears to be while there will be bumps ahead, both companies might emerge stronger than before.

Both Kroger and P&G are categorized as "consumer staples" companies, meaning they deal in products that consumers keep buying in good and bad times.

"Everybody knows the next quarter is going to be an absolute disaster," said Terry Kelly a principal at Bartlett & Co. "But P&G is a depression stock: even through the worst of times, they're a staple...As for Kroger – everybody has to eat. They're even hiring."

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Jeffrey Krumpelman, Mariner Wealth Advisors' chief investment strategist for equities, said the current instability is very dangerous for companies that deal in products and services that customers tend to buy in good times (cars, real estate, appliances, vacations, cruises, casinos, hotels).

Also, the collapse of oil prices due to a price war between Russia and Saudi Arabian (flooding the world market with cheap oil) is punishing energy companies. And the slashing of interest rates by the Federal Reserve is hurting banks and other financial institutions that make money by lending and other transactions. Most of all, companies that were struggling and borrowed heavily before the downturn are under tremendous strain.

But large, well-financed companies selling staples like Crest toothpaste and Pampers diapers and food, like P&G and Kroger, are shielded from the worst of that.

"P&G is well-positioned and Kroger's a staple," Krumpelman said.

The analyst predictions come as uncertainty has spread worldwide with the coronavirus.

The pandemic has thrown both the U.S. and the world's economy into turmoil and sent stocks worldwide into a tailspin, prompting Washington to approve a massive $2 trillion aid package to backstop heavy-hit industries and workers.

U.S. stocks rode a mostly downward roller coaster in March: spiraling down from a late February peak into correction (down 10%), then deeper into a Bear Market (down 20%) and crashed as low (so far) as down 35%. The market has rallied several times but is sinking again today.

Kroger and P&G stocks have also taken a beating – but less so than the broader market. On Wednesday, the S&P 500 is down about 26% from the peak – the market was sinking 3%, but both Kroger and P&G were rising.

Further stock market turmoil is likely in April as companies begin reporting their financial results – many likely dismal. P&G is expected to report its results in late April. Kroger reports later in June.

The stakes are high for Cincinnati, which depend on the consumer companies.

The two companies are hugely important to Greater Cincinnati, and not just because they are the largest among its six Fortune 500 companies. They're viewed as a key regional economic asset – sources of well-paying headquarters jobs; P&G employs 10,000 local office workers, while Kroger employs 3,000 local office workers besides the 21,000 working in the 105 stores in the region.  

Both companies are also magnets for other good jobs at related companies like vendors and consultants. Both companies are key supporters of regional cultural and nonprofit endeavors.

Lately, both CEOs are members of a Cincinnati USA Regional Chamber special task force set up to blunt the fallout from the national economic crisis. Both CEOs have also have had audiences with President Donald Trump.On Monday, P&G CEO David Taylor was part of a group of corporate heads of companies manufacturing items in high demand since the coronavirus outbreak. Kroger CEO Rodney McMullen participated in a conference call earlier in March regarding the nation's food production and supply chain.

Before the crisis, Kroger had predicted its sales for the year would rise more than 2.25% – a target it is beating handily for the moment. But the company said on Wednesday it was sticking with its current guidance for now – and taking other financial precautions in these uncertain times.

Also on Wednesday, Kroger said it would hit the pause button on stock repurchases to maximize available cash (an increasingly popular corporate move in recent weeks). It also said it has borrowed an extra $1 billion from its revolving line of credit to reduce its reliance on the commercial paper market (a different way of short-term funding) – but the company said it will keep total borrowing to adjusted EBITDA ratio target range between 2.3 to 2.5.

"Looking towards the rest of the year, Kroger expects volatility in sales throughout the year as the impact of COVID-19 on the consumer evolves," Kroger said, adding it doesn't know how long the pandemic will curtail travel and disrupt consumer eating habits.

While the company says sales are still higher than normal, so are its expenses as it presses to hire more than 20,000 workers. It has also handed out two frontline worker bonuses. The company is also spending more on extra production, shelf-stocking and store cleaning.

There are challenges ahead for both companies. It's unclear how deep the expected downturn will be – if America plunges into a harsh recession, it could change consumer preferences.

Consumers might trade down from P&G's premium brands like Gillette razors and Tide detergent that lately have won it market share. The same thing happened during the Great Recession – but P&G was slow to react to the cost-conscious consumer and sales suffered a decade ago.

"Consumers could trade down (to cheaper, lower-quality products)," said Joe Edelstein, a research analyst at Johnson Investment Counsel.

Meanwhile, Kroger might cash in with more consumers using their delivery and pickup services and win more loyal consumers, but it's unclear if shoppers will continue to want to eat in as much as the coronavirus crisis abates, Edelstein said.

For the latest on Kroger, P&G, Fifth Third Bank and Cincinnati business, follow @alexcoolidge on Twitter.