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Kroger Shares Drop 2% Despite Q1 Beat and Raised Guidance

Story Highlights

Kroger reported stronger-than-expected Q1 results, topping both earnings and revenue estimates with its “Leading with Fresh and Accelerating with Digital” initiatives driving the results.

Kroger (KR) shares dropped over 2% on June 16 despite the company delivering blowout first-quarter results.

Furthermore, the American retailer that operates supermarkets and multi-department stores throughout the U.S. raised its FY2022 guidance well above analysts’ expectations.

Q1 Beat

The company reported stellar quarterly earnings of $1.45 per share, significantly higher than analysts’ estimates of $1.28 per share and much higher than the earnings of $1.19 per share reported in the prior-year period.

Similarly, total sales gained 8% to $44.6 billion compared to the prior-year period and outpaced the Street’s estimate of $43.05 billion.

The revenue growth is attributed to a 5.2% growth in Fresh Department identical sales, a 6.3% growth in Brands identical sales, and a 11% gain in digital coupon downloads.

Raised FY2022 Outlook

Based on robust Q1 results, management raised financial guidance for FY2022.

The company now forecasts adjusted earnings in the range of $3.85 per share to $3.95 per share, which is higher than the prior guided range of $3.75 per share to $3.85 share, while the consensus estimate is pegged at $3.82 per share.

Furthermore, identical sales growth without fuel is forecast to be in the range of $2.5% to 3.5%, compared to the prior range of 2.0% to 3.0%.

CEO’s Comments

Rodney McMullen, CEO of Kroger, said,Our team is doing an outstanding job managing costs in an inflationary environment, which is allowing us to continue to invest in our associates while providing our customers the freshest food at affordable prices when and where they need it.”

Looking ahead, he further added, “We are well-positioned to continue delivering for our customers, investing in our associates, and driving sustainable returns for shareholders.”

Wall Street’s Take

Following the upbeat Q1 results, Telsey analyst Joseph Feldman reiterated a Buy rating and a price target on Kroger of $64 (28.4% upside potential).

Feldman believes that the quarterly beat was driven by higher inflation and persistent healthy at-home consumption, coupled with benefits from strategic initiatives, especially the omni-channel expansion.

Overall, KR stock comes with a Hold rating on three Buys, five Holds, and two Sells assigned in the past three months. The average Kroger price target is $56.13, implying 12.6% upside potential.

Conclusion

By emphasizing on essentials, Kroger was able to deliver an outstanding beat despite the inflation-driven slump, which impacted the results of other retailers and corporates.

Management’s confidence in delivering “sustainable earnings growth and total shareholder returns of 8% to 11% over time” bodes well for the stock in the long run.

Disclosure

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