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Kroger (KR) Beats on Q1 Earnings, Lifts Fiscal 2022 Guidance

The Kroger Co. KR came up with first-quarter fiscal 2022 results, wherein both the top and the bottom lines not only surpassed the Zacks Consensus Estimate but also improved year over year. The company also registered growth in identical sales, without fuel. Better execution and sustained demand for food at home resulted in a stronger-than-anticipated quarter, thus prompting management to lift the fiscal 2022 guidance.

This Cincinnati, OH-based company has been making significant investments to enhance product freshness and quality, and expand digital capabilities. Impressively, Kroger has been introducing new items under its “Our Brands” portfolio, and launched 239 new items during the quarter under review.

Let’s Introspect

Kroger posted adjusted earnings of $1.45 per share that surpassed the Zacks Consensus Estimate of $1.28 and increased from $1.19 reported in the prior-year quarter.

Total sales of $44,600 million came ahead of the Zacks Consensus Estimate of $44,227 million. Markedly, the metric rose from $41,298 million reported in the year-ago period. Excluding fuel, sales rose 3.8% from the year-ago period. We note that identical sales, without fuel, jumped 4.1%. Fresh Department identical sales increased 5.2%, while Our Brands identical sales rose 6.3%.

We note that gross margin was 21.6% of sales. The FIFO gross margin rate, excluding fuel, contracted 26 basis points compared to the same period last year. This reflects continued strategic price investments and higher supply chain costs offset by sourcing benefits and the cycling of a write-down related to a donation of personal protective equipment inventory from prior year.

Adjusted FIFO operating profit came in at $1,601 million, up from $1,375 million reported in the year-ago period.

The Kroger Co. Price, Consensus and EPS Surprise

The Kroger Co. Price, Consensus and EPS Surprise
The Kroger Co. Price, Consensus and EPS Surprise

The Kroger Co. price-consensus-eps-surprise-chart | The Kroger Co. Quote

Other Financial Aspects

Kroger ended the quarter with cash of $245 million, total debt of $13,639 million, and shareowners’ equity of $9,393 million. Net total debt increased by $327 million over the last four quarters. During the quarter, the company bought back $665 million shares. At the end of the quarter, the company had $301 million remaining under its share repurchase authorization announced on Dec 30, 2021.

Management estimates capital expenditures in the band of $3.8-$4 billion and expects to generate free cash flow between $2 billion and $2.2 billion in fiscal 2022.

Fiscal 2022 View

Management now envisions identical sales, without fuel, to be up 2.5-3.5% in fiscal 2022 compared with 0.2% growth registered in fiscal 2021. The company anticipates FIFO operating profit in the band $4.3-$4.4 billion compared with $4.3 billion reported in fiscal 2021.

Kroger now anticipates fiscal 2022 earnings between $3.85 and $3.95 per share, suggesting an increase from adjusted earnings of $3.68 reported in fiscal 2021. The Zacks Consensus Estimate for earnings for fiscal 2022 currently stands at $3.84, which could witness an upward revision in the coming days.

The company had earlier guided identical sales, without fuel, in the bracket of 2-3% and FIFO operating profit in the range $4.2-$4.3 billion for fiscal 2022. It had previously estimated earnings between $3.75 and $3.85 per share.

Wrapping Up

Kroger, which operates in the thin-margin grocery industry, has been making every effort to strengthen position not only with respect to products but also in terms of the way consumers prefer shopping. Realizing the need of the hour, the company has been offering a no-contact delivery option, low-contact pickup service and ship-to-home orders. During the quarter, the company opened two new Kroger Delivery facilities, powered by Ocado, in Dallas, Texas and Pleasant Prairie, Wisconsin.

Shares of this Zacks Rank #3 (Hold) company have advanced 13.6% in the past six months against the industry’s decline of 11.5%.

3 Hot Stocks to Consider

We have highlighted three better-ranked stocks, namely Sysco Corporation SYY, United Natural Foods UNFI and Medifast MED.

Sysco, the leading global foodservice distribution company, sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 9.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Sysco’s current financial year sales and EPS suggests growth of 32.6% and 124.3%, respectively, from the year-ago period. Sysco has an expected EPS growth rate of 11% for three-five years.

United Natural Foods, one of the premier grocery wholesalers delivering the widest variety of fresh, branded, and owned brand products, flaunts a Zacks Rank #1 at present. UNFI has a trailing four-quarter earnings surprise of 29.9%, on average.

The Zacks Consensus Estimate for United Natural Foods’s current financial-year sales and EPS suggests growth of 7.2% and 4.9%, respectively, from the year-ago reported numbers.

Medifast, which produces, distributes, and sells weight loss and health-related products, currently carries a Zacks Rank #2 (Buy). MED has a trailing four-quarter earnings surprise of around 12.9%, on average.

The Zacks Consensus Estimate for MED’s current financial-year sales and EPS suggests growth of nearly 19% and 13.4%, respectively, from the year-ago reported figure.


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