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Kroger Falls 7.5% Despite Beating Q2 Expectations, Lifts Guidance
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Kroger Falls 7.5% Despite Beating Q2 Expectations, Lifts Guidance

American supermarket chain The Kroger Company (KR) reported better-than-expected second-quarter results as the food at home trend gained momentum and the company’s digital channel witnessed strong customer engagement. However, shares fell 7.5%, closing at $42.67 on September 10, as management warned of rising grocery costs.

The company reported adjusted earnings of $0.80 per share, up 9.6% year-over-year and meaningfully surpassed the Street’s estimate of $0.64 per share. (See Kroger stock charts on TipRanks)

To add to that, total sales for the quarter climbed 3.9% to $31.68 billion and beat analysts’ estimates of $30.6 billion. Notably, Kroger’s identical sales (excluding fuel) declined 0.6% year-over-year but increased 14% on a two-year stack.

Commenting on the quarterly results, Rodney McMullen, Chairman and CEO of Kroger, said, “Customers are eating more food at home because it is more affordable, convenient, and healthier than other options…We are leveraging technology, innovation, and our competitive moats to deliver against the initiatives outlined at our 2021 investor day, and we remain confident in our ability to deliver total shareholder returns of 8% to 11% over time.”

Based on continued business momentum and sustainable food at home trends, Kroger lifted its full-year Fiscal 2021 guidance. The company now forecasts FY21 adjusted earnings to be in the range of $3.25 – $3.35 per share, much higher than consensus estimates of $3.06 per share.

Following the release of Kroger’s quarterly performance, Jefferies analyst Matthew Fishbein maintained a Hold rating on the stock with a price target of $38, implying 10.9% downside potential to current levels.

Fishbein noted that identical sales fell only 0.6% year-over-year compared to the consensus estimate of -3.2%, but first-in-first-out (FIFO) gross margins were 60% bps lower.

The analyst considered several factors that may pose a threat to the company’s future results, namely, “at-home food consumption reversal sooner than expected, increased competitive pressure and/or promotional activity, full pandemic revenue and market share giveback,” along with “lower than expected returns on digital fulfillment investments.”

Overall, the stock has a Hold consensus rating based on 2 Buys, 10 Holds, and 3 Sells. The average Kroger price target of $38.86 implies 8.9% downside potential to current levels. Shares have gained 29.9% over the past year.

Related News:
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Academy Sports and Outdoors Soars on Robust Q2 Results; Lifts Guidance
Verint Systems Exceeds Q2 Expectations, Raises FY22 Guidance

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