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Kroger (KR) Beats on Q1 Earnings & Sales, Lifts FY21 Guidance

·4 min read

The Kroger Co. KR came up with first-quarter fiscal 2021 results, wherein both the top and the bottom lines surpassed the Zacks Consensus Estimate. Management highlighted that identical sales results exceeded initial expectations. We note that the company’s digital business remains a key growth driver.

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 — launched 253 new items during the quarter under review. Cumulatively, these have aided the company’s performance prompting management to raise fiscal 2021 guidance.

Chairman and CEO Rodney McMullen said, “We were disciplined in driving costs out of the business and we achieved record growth in Kroger's alternative profit business, demonstrating the power and attractiveness of our long-term model.”

Let’s Introspect

Kroger posted adjusted earnings of $1.19 per share that surpassed the Zacks Consensus Estimate of 99 cents but decreased from $1.22 reported in the prior-year quarter.

Total sales of $41,298 million outpaced the Zacks Consensus Estimate of $39,222 million. However, the metric declined marginally 0.6% year over year. Excluding fuel, sales dropped 4% from the year-ago period. The company’s digital sales increased 16%, while identical sales, without fuel, fell 4.1%.

We note that gross margin contracted 170 basis points to 22.6%. FIFO gross margin, excluding fuel, declined 65 basis points from the year-ago period. This decrease reflects sales deleverage, higher shrink, continued price investments, and charges related to COVID-19, partly offset by sourcing benefits and growth in Alternative Profits. Adjusted FIFO operating profit came in at $1,375 million, down from $1,453 million reported in the prior-year quarter.

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 $360 million, total debt of $14,124 million, and shareowners’ equity of $9,229 million. Net total debt increased by $1,005 million over the last four quarters. The company’s board of directors approved new $1 billion share buyback program.

Management estimates capital expenditures in the band of $3.4-$3.6 billion and expects to generate free cash flow between $1.8 billion and $2 billion in fiscal 2021.

Fiscal 2021 View

Management now envisions identical sales, without fuel, to be down 2.5-4% in fiscal 2021. The company had previously expected a decline of 3-5% in the metric. The company anticipates FIFO operating profit in the band $3.5-$3.7 billion, up from prior projection of $3.3-$3.5 billion.

Management now anticipates fiscal 2021 earnings between $2.95 and $3.10 per share. The Zacks Consensus Estimate for earnings for the fiscal year currently stands at $2.83, which is likely to witness an upward revision in the coming days. The company had earlier forecast earnings in the range of $2.75 and $2.95 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. It expanded to 2,233 Pickup locations and 2,488 Delivery locations.

Shares of this Zacks Rank #3 (Hold) company have advanced 9.1% in the past three months compared with the industry’s rise of 6.1%.

Stocks to Consider

Target TGT has a long-term earnings growth rate of 13.3% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Walmart WMT has a trailing four-quarter earnings surprise of 17.8%, on average. The stock carries a Zacks Rank #2 (Buy).

Costco COST has a long-term earnings growth rate of 9.1% and a Zacks Rank #2 currently.

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Target Corporation (TGT) : Free Stock Analysis Report

Walmart Inc. (WMT) : Free Stock Analysis Report

The Kroger Co. (KR) : Free Stock Analysis Report

Costco Wholesale Corporation (COST) : Free Stock Analysis Report

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