Kroger Earnings to Fall About 20% in Q1; Target Price $35

Kroger, one of the world’s largest food retailers, is expected to report its fiscal first-quarter earnings of $0.98 per share, which represents a year-over-year decline of about 20% from $1.22 per share seen in the same period a year ago.

The retailer, which operates over 2,500 supermarkets in the U.S., would post a revenue decline of 5.6% year-on-year to $39,222 million. However, it is worth noting that in the last four quarters, on average, the company has beaten earnings estimates about 19%.

Kroger is likely to have faced tough year-over-year comparisons in sales, as COVID-19 benefits are lapped. Industry experts believe that lower at-home consumption activities and a drop in pantry-loading trends might have hurt the company’s first-quarter top-line performance,” noted analysts at ZACKS Research.

Kroger shares rose over 20% so far this year. The stock ended 0.8% lower at $38.4 on Monday.

Analyst Comments

“The company has been making every effort to strengthen position not only with respect to products but also in terms of the way consumers prefer shopping. The company’s “Restock Kroger” program involving investments in omni-channel platform, identifying margin-rich alternative profit streams, merchandise optimization, and lowering of expenses has been gaining traction,” noted analysts at ZACKS Research.

“These aided the company to post decent fourth-quarter fiscal 2020 results, wherein both the top and the bottom lines grew year-over-year. However, Kroger expects tough year-over-year comparison in fiscal 2021, and signaled a decline in identical sales, without fuel. Pandemic-induced demand is likely to moderate, as vaccination drive gather space and consumers return to the old normal.”

Kroger Stock Price Forecast

Eight analysts who offered stock ratings for Kroger in the last three months forecast the average price in 12 months of $35.00 with a high forecast of $38.00 and a low forecast of $31.00.

The average price target represents a -8.85% from the last price of $38.40. Of those 8 analysts, none rated “Buy”, five rated “Hold” and three rated “Sell”, according to Tipranks.

Morgan Stanley gave the stock price forecast of $29 with a high of $45 under a bull scenario and $16 under the worst-case scenario. The firm gave an “Underweight” rating on the software company’s stock.

Kroger (KR) is one of the largest conventional food retailers, with competitive advantages including leading scale, an advanced customer data science platform, and ramping digital capabilities. 2020 was a historically strong year for KR driven by COVID-19 uplifts, but KR’s share gains are already normalizing we anticipate an industry sales slowdown in 2021-2022 that is underappreciated in Street estimates,” noted Simeon Gutman, equity analyst at Morgan Stanley.

“Meanwhile we model EBIT margins to return to pre-COVID-19 levels by 2022 as normalizing promotional activity and e-comm pull-forward pressure margins. Longer-term we continue to struggle to model a path to sustainable EBIT growth and margin stabilization.”

Several other analysts have also updated their stock outlook. Oppenheimer raised the price target to $38 from $34. BMO lifted the price target to $36 from $34. Jefferies increased the price target to $37 from $33. UBS raised the target price to $35 from $33. Deutsche Bank lifted the target price to $36 from $35.

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Kroger Tops Q4 Estimates, But Expects Sales Slowdown as Pandemic-Driven Demand Wanes

Kroger, one of the world’s largest food retailers, reported better-than-expected profit in the fourth quarter but the company flagged that its pandemic-driven sales growth will fade this year.

The retailer which operates over 2,500 supermarkets in the U.S. said it earned $0.81 per share in the quarter ended on January 30, 2021, beating Wall Street consensus estimates of $0.69 cents per share.

The company said its total company sales were $30.7 billion in the fourth quarter, compared to $28.9 billion for the same period last year. Excluding fuel and dispositions, sales grew 10.7%.

Kroger Q4 ID sales growth came in >10% y/y, FY’21 guidance was provided, the FY’21 capex range’s midpoint is <10% higher than consensus, and the all-important Investor Day is scheduled for Wed Mar 31 — clearing the investment community’s bar on each front, in our view. Q4 EPS of $0.81 beat our/consensus $0.69, driven by higher gross margin and lower interest expense, and consensus currently sits below FY’21 ID sales growth, operating profit, and EPS ranges,” noted Matt Fishbein, equity analyst at Jefferies.

However, Kroger reported a net attributable loss of $77 million, worse compared to a profit of $327 million seen in the same period a year ago. Kroger forecasts adjusted full-year same-store sales to decline in the range of 3%-5% and earnings per share in the range of $2.75-$2.95.

Kroger shares, which rose over 9% in 2020, traded about 3% higher at $34.11 on Thursday.

Kroger Stock Price Forecast

Eight analysts who offered stock ratings for Kroger in the last three months forecast the average price in 12 months of $32.43 with a high forecast of $39.00 and a low forecast of $28.00.

The average price target represents a -4.48% decrease from the last price of $33.95. From those eight analysts, none rated “Buy”, five rated “Hold” and three rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $28 with a high of $45 under a bull scenario and $15 under the worst-case scenario. The firm gave an “Underweight” rating on the multi-department stores’ stock.

Several other analysts have also updated their stock outlook. BofA Global Research lowered the price objective to $28 from $40. Stephens raised the target price to $35 from $30. Telsey advisory group slashed the price objective to $39 from $43.

Moreover, Kroger had its price objective increased by research analysts at Wells Fargo & Company to $34 from $31. The brokerage presently has an “equal weight” rating on the stock. Zacks Investment Research cut from a “buy” rating to a “hold” rating and set a $34.00 price objective on the stock. Barclays cut from an “equal weight” rating to an “underweight” rating and set a $31.00 price objective on the stock.

Analyst Comments

Kroger (KR) is one of the largest conventional food retailers, with competitive advantages including leading scale, an advanced customer data science platform, and ramping digital capabilities. 2020 was a historically strong year for KR driven by COVID-19 uplifts, but KR’s share gains are already normalizing we anticipate an industry sales slowdown in 2021-2022 that is underappreciated in Street estimates,” said Simeon Gutman, equity analyst at Morgan Stanley.

“Meanwhile we model EBIT margins to return to pre-COVID-19 levels by 2022 as normalizing promotional activity and e-comm pull-forward pressure margins. Longer-term we continue to struggle to model a path to sustainable EBIT growth and margin stabilization,”

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Kroger Shares Slump as Online Sales Growth Slows; Target Price $36

Kroger, one of the world’s largest food retailers, reported better-than-expected profit in the third quarter but its COVID-19-driven online sales growth slowed from the preceding quarter due to easing lockdown restrictions, sending its shares down over 4% on Thursday.

The retailer which operates over 2,500 supermarkets in the U.S. reported digital sales growth of 108% in the third quarter ended November 7, lower than the 127% surge it registered in the preceding quarter.

Kroger posted total sales of $29.7 billion in the third quarter, compared to $28.0 billion for the same period last year. Excluding fuel, it climbed just over 6% to $29.72 billion, lower than the Wall Street estimate of $29.97 billion. The U.S. supermarket chain reported an EPS of $0.80 and adjusted EPS of $0.71, up 51% compared to the prior year. That better than market consensus of $0.61.

The U.S. supermarket chain forecasts adjusted per-share profit between $3.30 to $3.35 in 2020, a little better compared with its prior range of $3.20 to $3.30. Kroger forecasts same-store sales, to increase nearly 14%, up from previous expectations of a more than 13% growth.

“Our $33 per share valuation of narrow-moat Kroger is unlikely to change substantially after the firm announced solid third-quarter results (10.9% identical sales growth, excluding fuel; 2.7% operating margin) that continue to be driven by Americans’ turn homeward during the pandemic,” said Zain Akbari, equity analyst at Morningstar.

“With vaccines on the horizon, we continue to expect normalization as case counts fall in fiscal 2021, leading to2%-3% top-line growth and operating margins long-term.”

Kroger’s shares closed 4.36% lower at $30.88 on Thursday. However, the stock is up over 6% so far this year.

Executive Comments

“As a result of our continued strong performance, market share growth and the expectation of sustained trends in food at home consumption for the remainder of our fiscal year, we are raising our full-year 2020 guidance. For the full year 2020, we expect total identical sales without fuel to be around 14% and adjusted EPS growth of 50% to 53%,” said CFO Gary Millerchip

“Looking toward 2021, we believe that our performance will be stronger than we would have expected prior to the pandemic when viewed as a two-year stacked result for identical sales without fuel growth and as a compounded growth rate over 2020 and 2021 for adjusted earnings per share growth.”

Kroger Stock Price Forecast

Thirteen equity analysts forecast the average price in 12 months at $36.27 with a high forecast of $40.00 and a low forecast of $33.00. The average price target represents a 17.45% increase from the last price of $30.88. From those 13 analysts, one rated “Buy”, 12 rated “Hold”, none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $35 with a high of $55 under a bull-case scenario and $17 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the multi-department stores’ stock. JP Morgan lowered the target price to $34 from $38 and Jefferies assumes coverage with hold rating and target price of $33.

Several other analysts have also upgraded their stock outlook. Kroger had its price objective increased by investment analysts at Scotiabank to $40 from $38. The brokerage presently has a “sector outperform” rating on the stock. Wells Fargo increased their price objective to $38 from $37 and gave the company an “overweight” rating in May. Bank of America lowered shares from a “buy” rating to a “neutral” rating and set a $40.00 price objective.

Analyst Comments

“Kroger (KR) is one of the largest conventional food retailers, with competitive advantages including leading scale, an advanced customer data science platform, and ramping digital capabilities. COVID-19 disruption is driving a meaningful acceleration in ID sales and profitability in 2020 and could result in a secular share shift to Food at Home,” said Simeon Gutman, equity analyst at Morgan Stanley.

“We expect the Food Retail industry to experience margin pressure from discount and e-comm operators over the next several years. For KR, we struggle to model a path to sustainable EBIT growth and margin stabilization. We forecast long-term ID sales of 2.5%, roughly in-line with the industry, as we expect in-store and online initiatives to keep pace,” Gutman added.

Upside and Downside Risks

Risks to Upside: 1) COVID-19 provides meaningful ID sales/EBIT uplift and drives longer-term shift to Food at Home. 2) Continued share gains from other conventional operators/independent grocers. 3) Ocado partnership shows signs of progress – highlighted by Morgan Stanley.

Risks to Downside: 1) COVID-19 fails to drive higher profitability with incremental expenses to support demand. 2) Promotional environment intensifies, driven by WMT/discounters. 3) Online competition pressures margins.

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Kroger Upgrades 2020 Sales and Profit Forecast, But Analysts are Skeptical

Kroger Co, one of the world’s largest food retailers, expects their 2020 same-store sales without fuel to grow more than 13% and forecasts full-year adjusted EPS growth of about 45% to 50%; however, some equity analysts are skeptical over the long-term growth story.

U.S. supermarket chain said its total company sales were $30.5 billion in the second quarter, compared to $28.2 billion for the same period last year. Excluding fuel, sales grew 13.9%. Gross margin was 22.8% of sales for the second quarter.

During the quarter, Kroger repurchased $211 million shares under its $1 billion board authorization announced on November 5, 2019. On September 11, 2020, the Board of Directors authorized a $1 billion share repurchase program, replacing the prior authorization.

“Kroger (KR) reported upside on 2Q20 comps, a new $1 billion buyback, and delivered a generally optimistic FY20 outlook based on sustained FAH trends. However, the co. is investing in pricing/promos along w/ free pickup in an attempt to enhance overall value, which is hampering leverage,” said Christopher Mandeville, equity analyst at Jefferies.

“Incremental profitability in digital is a pos. step, although we have doubts about long-term strategy. Overall, reit. Hold as we question KR’s strategic positioning and long-term outlook vs. scaled peers,” Mandeville added.

Kroger’s shares ended 1.06% higher at $34.37 on Friday, but the stock is up about 20% so far this year.

Executive comments

“As we talk to other companies across America, we believe return to work will look very different, with many employees working part of the week from home. 2021 will be even stronger than we previously anticipated,” said chief executive officer Rodney McMullen told analysts on a call, Reuters reported.

Kroger stock forecast

Sixteen analysts forecast the average price in 12 months at $36.53 with a high forecast of $42.00 and a low forecast of $33.00. The average price target represents a 6.28% increase from the last price of $34.37. From those 16 equity analysts, five rated “Buy”, 11 rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $35 and gave the company an “Equal-weight” rating. JP Morgan Chase & Co. boosted their price objective on Kroger to $34 from $33 and gave the company a “Neutral” rating.

Other equity analysts also recently updated their stock outlook. Telsey Advisory Group raised their price target to $43 from $41. ValuEngine upgraded Kroger from a “Strong sell” rating to a “Sell” rating in a research report on Monday, August 3rd. Wells Fargo & Co boosted their price objective to $38 from $37 and gave the stock an “Overweight” rating. BMO Capital Markets reiterated a “Hold” rating and set a $34.00 price target. At last, UBS Group increased their stock price forecast to $35 from $33 and gave the stock a “Neutral” rating.

Analyst views

“Our $31.50 fair value estimate for narrow-moat Kroger should rise by a mid-single-digit percentage after the company announced strong second-quarter earnings fueled by Americans’ continued pandemic-related turn homeward. While top-line expansion tapered from first-quarter levels ( 14.6%  identical sales growth,  excluding fuel,  versus 19.0%), Kroger now appears poised to beat our prior full-year 9% target, particularly with rising infection rates in the fall and winter likely to maintain or amplify current trends,” Zain, equity analyst at Morningstar.

“Coupled with strong scale-driven profitability (roughly 70 basis points of adjusted operating profit expansion, or nearly 85 basis points year to date, against our 30-basis-point prior estimate), we anticipate lifting our fiscal 2020 adjusted EPS estimate of $2.78 toward management’s $3.20-$3.30 range,” Akbari added.

Upside and Downside Risks

Upside: 1) COVID-19 provides meaningful ID sales/EBIT uplift and drives longer-term shift to Food at Home. 2) Continued share gains from other conventional operators/independent grocers. 3) Ocado partnership shows signs of progress – highlighted by Morgan Stanley.

Downside: 1) COVID-19 fails to drive higher profitability with incremental expenses to support demand. 2) Promotional environment intensifies, driven by WMT/discounters. 3) Online competition pressures margins.

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