<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="The Kroger Co. KR reported first-quarter fiscal 2019 results, wherein both the top and bottom line came ahead of the Zacks Consensus Estimate. However, both the metrics continued to decline year over year. Management also reiterated its fiscal 2019 forecast.” data-reactid=”11″>The Kroger Co. KR reported first-quarter fiscal 2019 results, wherein both the top and bottom line came ahead of the Zacks Consensus Estimate. However, both the metrics continued to decline year over year. Management also reiterated its fiscal 2019 forecast.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Let’s Introspect” data-reactid=”12″>Let’s Introspect
The company, which concluded the sale of Turkey Hill business, delivered adjusted earnings of 72 cents a share that came a penny ahead of the Zacks Consensus Estimate but fell 1.4% from 73 cents reported in the prior-year quarter. This Cincinnati, OH-based company continues to envision fiscal 2019 net earnings in the band of $2.15-$2.25 per share, which indicates an improvement over adjusted earnings of $2.11 per share reported in fiscal 2018.
Total sales of $37,251 million surpassed the Zacks Consensus Estimate of $36,865 million but decreased 1.2% from the prior-year quarter. The year over year decline in total sales was due to the sale of Kroger’s convenience store business unit.
Excluding fuel and the impact of the sale of convenience store business unit, top line improved 2% from the year-ago period. The company’s digital sales surged 42%, while identical sales, excluding fuel, grew 1.5%. Management reaffirms identical sales growth forecast of 2-2.25% in fiscal 2019.
We note that gross margin increased 20 basis points to 22.2%, after expanding 10 basis points in the preceding quarter. FIFO gross margin, excluding fuel, shrunk 40 basis points from the year-ago period, mainly due to industry-wide lower gross margin rates in pharmacy. Adjusted FIFO operating profit fell 6.4% to $957 million. Kroger anticipates adjusted operating profit in the band of $2.9-$3 billion.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="The Kroger Co. Price, Consensus and EPS Surprise” data-reactid=”17″>The Kroger Co. Price, Consensus and EPS Surprise
The Kroger Co. price-consensus-eps-surprise-chart | The Kroger Co. Quote
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Strategic Endeavors” data-reactid=”31″>Strategic Endeavors
The grocery industry has been undergoing a fundamental change, with technology playing a major role and the focus shifting to online shopping. Kroger, which faces stiff competition from bellwethers such as Walmart WMT and Amazon AMZN, has taken stock of the situation and is in the process of giving itself a complete makeover. The company is expanding store base, introducing new items, digital coupons, and order online, pick up in store initiative.
The company’s “Restock Kroger” program is also gaining traction. Management informed that “Our Brands” sales grew 3.3% buoyed by double-digit growth in Simple Truth. The company also introduced 219 new Our Brands items. Pickup or Delivery reached 93% of Kroger households. The company is testing new Home Chef retail meal solutions, comprising oven-ready options, Heat & Eat choices, and lunch kits. Management is also targeting “margin-rich alternative profit streams” which are likely to contribute an estimated incremental $100 million in operating profit this fiscal year versus the prior.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Other Financial Aspects” data-reactid=”34″>Other Financial Aspects
Kroger ended the quarter with cash of $365 million, total debt of $13,469 million, and shareholders’ equity of $8,532 million. Total debt decreased $832 million from the prior-year period. The company’s net total debt to adjusted EBITDA ratio jumped to 2.54 compared with 2.43 in the year-ago period but down from 2.83 at the end of fiscal 2018.
In the trailing four quarters, the company bought back $216 million of shares and paid $440 million in dividends. Management project capital expenditures — excluding mergers, acquisitions and purchases of leased facilities — to be in the range of $3-$3.2 billion in fiscal 2019.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Bottom Line” data-reactid=”37″>Bottom Line
We believe that Kroger’s customer-centric business model provides a strong value proposition. However, intensifying price war among grocery stores to lure budget-constrained consumers poses concern.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Kroger carries a Zacks Rank #3 (Hold). A favorably-ranked stock includes Ingles Markets, Incorporated IMKTA having a long-term earnings growth rate of 8% with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.” data-reactid=”39″>Kroger carries a Zacks Rank #3 (Hold). A favorably-ranked stock includes Ingles Markets, Incorporated IMKTA having a long-term earnings growth rate of 8% with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Add Comment