Trade jitters continued to pressure stocks on Thursday, with the Dow Jones Industrial Average (DJINDICES: ^DJI) falling for the eighth straight day. The S&P 500 (SNPINDEX: ^GSPC) lost more than half a percentage point, but is still up for the year.
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Energy stocks were slammed, with the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEMKT: XOP) tumbling 2.6%. The industrial sector continued falling on trade concerns; the Industrial Select SPDR ETF (NYSEMKT: XLI) lost another 1.3%.
Two consumer stocks jumped following strong earnings reports. The Kroger Co. (NYSE: KR) and Darden Restaurants (NYSE: DRI) both delivered surprisingly high profit gains.
Image source: Getty Images.
Kroger thriving despite tough competition
Grocery giant Kroger announced fiscal first-quarter results that exceeded expectations, and shares gained 9.7%. Sales increased 3.4% to $37.5 billion and adjusted earnings per share more than doubled to $0.73, compared with $0.32 in the period last year. Wall Street was expecting Kroger to earn $0.63 per share on sales of $37.3 billion.
Identical-store sales, excluding fuel, grew 1.4%, but when including specialty pharmacy and home delivery sales, which is how the company will calculate the metric going forward, the closely watched growth metric was 1.9%. Gross margin, which fell last quarter to 21.9% and created some concern among analysts, held relatively steady sequentially at 21.8%. Digital sales grew more than 66%.
Looking forward, Kroger expects identical sales growth in the range of 2% to 2.5%. The company expects that its effort to optimize store space will create a headwind for sales in Q2, but by late Q3 will become a tailwind. It raised the low end of its adjusted EPS guidance for the full year by $0.05, now forecasting $2.00 to $2.15.
Kroger is investing in home delivery and digital sales, having bought meal kit company Home Chef and partnering with online grocer Ocado during the quarter. Investors were encouraged today that these investments and Kroger's efforts to keep prices low are being successful in growing sales and profits in the very competitive grocery market.
Darden serves up strong profit growth
Shares of Darden Restaurants, parent of Olive Garden and LongHorn Steakhouse, soared 14.8% after the company reported fiscal fourth-quarter earnings that beat analyst expectations. Sales from continuing operations increased 10.3% to $2.13 billion, about what was expected. Adjusted EPS from continuing operations grew 17.8% to $1.39, well above the analyst consensus of $1.35.
Same-restaurant sales at the company's legacy brands grew 2.2%, and those of flagship chain Olive Garden increased 2.4%, thanks mostly to a 1.7% boost from price increases. Comps at LongHorn Steakhouse also grew 2.4%, but those of recently acquired Cheddar's Scratch Kitchen fell 4.7%. Labor costs as a percentage of sales expanded by 90 basis points, but the company was able to cut costs in other areas to compensate, and restaurant-level EBITDA margin improved by 20 basis points from the period last year.
The company also increased the quarterly dividend 19% to $0.75, giving the stock a 2.8% yield.
Darden also issued guidance for fiscal 2019 that was well ahead of Wall Street's profit expectations. The company expects to earn $5.40 to $5.56, while analysts had been forecasting $5.41. Sales are expected to increase 4% to 5% with comparable-restaurant sales growth between 1% and 2%.
Darden shares were whacked after last quarter's report on falling margins and fear that this report would be weak. Instead, the strong profit performance announced today renewed investors' appetite for the stock.
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