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Will Kroger ETFs Gain on Impressive Q2 Earnings?

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The Kroger Co. (KR - Free Report) reported impressive second-quarter fiscal 2020 results on Sep 11, wherein earnings and revenues beat estimates and showed significant year-over-year improvement. However, shares of Kroger have lost around 5.5% since the earnings release as some analysts believe that the company might face difficult comparisons in the online grocery business as restaurant spending is gradually picking up pace.

Q2 Earnings in Detail

Kroger delivered adjusted earnings of 73 cents a share that beat the Zacks Consensus Estimate of 51 cents and surged from 44 cents reported in the prior-year quarter. Notably, this was the third straight quarter of an earnings surprise.

Total sales of $30,489 million surpassed the Zacks Consensus Estimate of $30,058.4 million. The metric increased 8.2% year over year. Excluding fuel, the top line rose 13.9% from the year-ago period. The company’s digital sales surged 127%, while identical sales, without fuel, grew 14.6% compared with 92% and 19%, respectively, reported in the preceding quarter.

Kroger ended the quarter with cash of $372 million, total debt of $13,482 million, and shareowners’ equity of $9,793 million. Net total debt decreased by $2,174 million over the last four quarters.

Revised Outlook

Kroger updated its fiscal 2020 view following strong performance in the first half and on expectation of a sustained food-at-home trend. Management forecasts fiscal 2020 earnings between $3.20 and $3.30 per share, which reflects an increase of 45-50% on a year-over-year basis. For fiscal 2020, Kroger expects total identical sales, without fuel, to exceed 13% and adjusted FIFO operating profit in the band $3.9-$4 billion.

Company Gains From ‘New Normal’

The rest of 2020 is expected to keep bearing the brunt of the coronavirus outbreak which continues unabated.In fact, the total number of coronavirus-infected cases crossed 6.5 million in the United States, with the death toll touching at least 194,000.In the current scenario, certain new trends like rising work-from-home and online shopping trends are being observed.

Strikingly, even as the rebooting of the U.S. economy happens in phases and social-distancing restrictions are being eased, people are increasingly opting for contactless operations. It’s largely because the pandemic has brought about some changes in lifestyle and influenced Americans’ preferences. Most surveys have found that people are more interested in online shopping rather than visiting a brick-and-mortar store for their purchases of essential food items and supplies now. Thanks to the trend, Kroger’s digital sales surged 127% during the second quarter of fiscal 2020.

Going on, the coronavirus outbreak has brought about noticeable change in consumers’ buying behavior and spending pattern with items like toilet paper, disinfectants, masks, gloves, packaged water, medicines and related food staples dominating people’s shopping lists.

ETFs to Gain

Against this backdrop, we highlight some ETFs with the highest exposure to Kroger and thus the potential to gain on the impressive Q2 earnings results:

First Trust Nasdaq Retail ETF (FTXD - Free Report)

The fund follows the Nasdaq US Smart Retail Index and holds 51 stocks in its basket. It holds a basket of 51 stocks, with Kroger occupying the fifth spot with 6.88% weight. FTXD has accumulated $6.5 million in its asset base and has an expense ratio of 0.60%. The ETF has remained mostly flat since Kroger’s earnings release (as of Sep 14) (read: Retail ETFs Look Strong Post Q2 Earnings).

IBD Breakout Opportunities ETF (BOUT - Free Report)

The fund seeks to provide exposure to the investment results of the IBD Breakout Stocks Index. Bout holds a basket of 25 stocks, with Kroger occupying the tenth spot with 5.55% weight. It has accumulated $5.8 million in its asset base and has an expense ratio of 0.84%. The ETF has gained 1.4% since Kroger’s earnings release (as of Sep 14)   (read: Nvidia Tops Intel by Market Cap: ETFs to Buy).

John Hancock Multifactor Consumer Staples ETF (JHMS - Free Report)

The fund pursues results that closely correspond, before fees and expenses, to the performance of the John Hancock Dimensional Consumer Staples Index. It has accumulated $22.9 million in its asset base and has an expense ratio of 0.40%. The fund holds a basket of 53 stocks, with Kroger occupying the sixth spot with 4.56% weight. The ETF has gained 0.7% since Kroger’s earnings release (as of Sep 14)  (read: 5 ETF Strategies to Follow Latest Investing Style of Buffett).

Invesco S&P 500 Equal Weight Consumer Staples ETF (RHS - Free Report)

The fund is based on the S&P 500 Equal Weight Consumer Staples Index. It has accumulated $524 million in its asset base and has an expense ratio of 0.40%. The fund holds a basket of 34 stocks, with Kroger occupying 2.85% weight. The ETF has gained 1% since Kroger’s earnings release (as of Sep 14).

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