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Kroger Tops 2Q Estimates As Digital Sales Jump 127%

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Kroger reported stronger-than-expected 2Q results on Friday fueled by a 127% surge in online sales. Its adjusted earnings of $0.73 per share exceeded analysts’ expectations of $0.54 per share. 2Q revenues of $30.5 billion surpassed Street estimates of about $30 billion.

Kroger's (KR) digital sales soared 127% year-over-year driven by pandemic-led demand. Same-store sales, without fuel, grew 14.6% year-over-year and beat the Street consensus of 10.5% growth. The company also authorized a new $1 billion share buyback program during the quarter.

The grocery chain operator expects total same-store sales, not including fuel, to exceed 13% and forecasts adjusted EPS growth of approximately 45% to 50% year-over-year to $3.20-$3.30 per share in 2020. The 2020 guidance was the result of strong first-half performance and the “expectation of sustained trends in food-at-home consumption and confidence in our ability to execute against the Restock Kroger strategy.”

Despite the 2Q performance, shares are trading about 1% lower in the pre-market session on Monday, as Kroger posted decelerating numbers from 1Q levels. The grocery chain reported sales of $42 billion, adjusted EPS of $1.22 per share and same-store sales growth of 19% in 1Q. (See KR stock analysis on TipRanks).

Oppenheimer analyst Rupesh Parikh looked “quite favorably” upon Kroger’s 2Q numbers. Parikh said that the company has delivered “another strong quarter of market share gains.” The analyst noted that the management “updated guidance well above the Street with forecasts of FY20 EPS of $3.20-3.30 vs. a current Street figure of $2.92.” However, he also sees that similar to peers, Kroger is also facing slowing trends and more difficult comparisons. As such, he views Kroger shares as fully valued at current levels and maintained his Hold rating with a price target of $34 (1.08% downside potential).

Currently, the Street has a cautiously optimistic outlook on the stock. The Moderate Buy analyst consensus is based on 5 Buys and 11 Holds. The average price target of $36.53 implies upside potential of about 6.3% to current levels. Shares have gained about 18.6% year-to-date.

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