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Kroger (KR) Down 2.1% Since Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for The Kroger Co.KR . Shares have lost about 2.1% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is KR due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Kroger's Q1 Earnings & Sales Beat Estimates

Kroger's "Restock Kroger" program gave a solid start to fiscal 2018. After reporting in line earnings in the final quarter of fiscal 2017, this grocery retailer posted better-than-expected first-quarter results prompting management to raise the lower end of fiscal 2018 earnings view.

The company delivered adjusted earnings of 73 cents a share that surpassed the Zacks Consensus Estimate of 63 cents and increased 25.9% from the prior-year quarter. This Cincinnati, OH-based company now envisions adjusted earnings in the range of $2.00-$2.15 per share compared with the prior forecast of $1.95-$2.15.

On a GAAP basis, the company now expects earnings in the band of $3.64-$3.79 per compared with the previous forecast of $3.59-$3.79.

Total sales grew 3.4% to $37,530 million from the prior-year quarter and also came ahead of the Zacks Consensus Estimate of $37,212 million, marking the seventh straight quarter of revenue beat. Excluding fuel center sales, total sales rose 2.3%. Excluding fuel and the recently-sold convenience store business unit, total sales jumped 2.8%. Digital sales surged 66% during the quarter under review due to ongoing expansion of ClickList.

The grocery industry has been undergoing a fundamental change, with technology playing a major role and the focus shifting to online shopping. Kroger has taken the 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. These endeavors are likely to fuel top-line growth. The grocery industry is no longer shielded from the e-commerce war. Given this scenario, the Ocado deal along with the acquisition of Home Chef is definitely a good move by Kroger to stay abreast in the race.

We believe that the company's operational strategies present enormous opportunities to augment identical supermarket sales and enhance return on invested capital. The company's identical supermarket sales, excluding fuel center sales, grew 1.4%. Including Kroger Specialty Pharmacy and ship-to-home solutions - Kroger's identical sales, without fuel, rose 1.9% in the quarter. Kroger now projects fiscal 2018 identical sales growth, excluding fuel, to be in the range of 2%-2.5%.

Other Financial Aspects

Kroger ended the quarter with cash of $315 million, total debt of $14,301 million, and shareholders' equity of $6,941 million. Total debt increased $857 million from the prior-year period. The company's net total debt to adjusted EBITDA ratio jumped to 2.43 compared with 2.33 in the year-ago period. In the trailing four quarters, the company bought back $2.7 billion of shares and paid $442 million in dividends. The company had approximately $546 million remaining under its share buyback program.

Management continues to project capital expenditures - excluding mergers, acquisitions and purchases of leased facilities - to be approximately $3 billion for fiscal 2018.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been five revisions lower for the current quarter.

The Kroger Co. Price and Consensus

The Kroger Co. Price and Consensus | The Kroger Co. Quote

VGM Scores

At this time, KR has a great Growth Score of A, though it is lagging a bit on the momentum front with a B. The stock was also allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is equally suitable for value and growth investors while momentum investors may want to look elsewhere.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, KR has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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