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Kroger Co. (NYSE:KR) posts mixed report — shares higher

  • Supermarket chain logs $0.44 adjusted EPS and $28.17bn revenue for fiscal second quarter
  • Same-store sales, not including fuel, advance 2.2%
  • Expects $2.15–$2.25 adjusted EPS for FY 2020
  • Shares up (+1%) on Thursday, down 7% year-to-date

Grocery giant Kroger Co. (NYSE:KR) said it was focused on “serving America through food inspiration and uplift” after posting a mixed corporate report, which featured an earnings beat, a revenue miss and a reiteration of prior profit guidance for the full year.

Just before Thursday’s opening bell, Kroger came in with $0.44 Non-GAAP EPS for the three month period ending 17th August 2019, which was three cents ahead of the Wall Street consensus.

Group revenues also climbed 0.6% year-over-year from $28.01bn to $28.17bn, but that was still $170m short of the pre-report expectations.

Despite the fall, identical stores sales beat the consensus mark by rising 2.2% in the second quarter, while gross margin and operating margin widened against sales to 21.9% and 2.2% respectively, again ahead of forecasts.

The solid financial quarter fuelled Kroger’s confidence in hitting previous guidance for the FY 2020, and it stood pat on the previously communicated $2.15–$2.25 adjusted EPS figure, which is in line with a FactSet survey estimate ($2.17).

CEO Rodney McMullen said he was “pleased” with the performance of its supermarket business across the latest quarter. He hailed the best corresponding sales since it enacted a transformation plan centred on delivering a better customer experience.

He added: “Gross margin headwinds in pharmacy were offset by strong fuel performance during the quarter.

“We continue to reduce costs and are on track to deliver $100m in incremental operating profit through alternative profit stream growth. We delivered strong free cash flow and are now within our targeted net total debt to adjusted EBITDA range,” McMullen noted.

Kroger stock dipped immediately after the report but railed 0.82% soon after with shares valued at $25.75 early on Thursday. However, the stock remains in negative territory (-7%) since 1st January compared to a 19.7% rise for the wider S&P 500 index.

Investor and analyst sentiment is unlikely to shift dramatically after a largely positive showing, which showcases the Cincinnati-based company’s ability to deliver consistent returns.

Prior to Thursday’s report, Kroger had beaten EPS and revenue estimates 75% and 63% of the time, respectively, during the last two years. However, its guidance record has been a bit more spotty.

A few other highlights from the Q2 report include Kroger delivering a 3.1% spike in brand sales compared to the previous year after the launch of 203 new ‘Our Brands’ items.

It has also managed to reduce the amount of food waste by 9% during the last year as it continues to take steps to create a more sustainable future for the business.

Kroger said it would continue to follow its previous financial strategy, which prioritises the use of free cash flow as a growth driver while doing its utmost to deliver value to shareholders. Net total debt has decreased by $1.3bn since early 2018.