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Factors Shaping the Outcome of Kroger's (KR) Q3 Earnings

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The Kroger Co. (KR - Free Report) is likely to register an increase in the top line when it reports third-quarter fiscal 2020 results on Dec 3, before the market opens. The Zacks Consensus Estimate for revenues is pegged at $29,978 million, indicating growth of 7.2% from the prior-year reported figure.

Further, the bottom line of this operator of supermarket chain is expected to improve year over year. We note that the Zacks Consensus Estimate for earnings for the quarter under review has been stable at 66 cents over the past 30 days. The figure suggests a sharp improvement from 47 cents reported in the year-ago period.

Notably, the company has a trailing four-quarter earnings surprise of 13%, on average. In the last reported quarter, this Cincinnati, OH-based company’s bottom line surpassed the Zacks Consensus Estimate by 43.1%.

Key Factors to Note

Kroger, which operates in the thin-margin grocery industry, has been making every effort to strengthen position not only with respect to products but also in terms of the way consumers prefer shopping. Given the structural shift from food consumed away from home to food consumed at home, the company has been making significant investments to enhance product freshness and quality, and expand digital capabilities. Cumulatively, these are likely to have aided the company’s third-quarter performance.

The company’s “Restock Kroger” program involving investments in omni-channel platform, identifying margin-rich alternative profit streams, merchandise optimization, and lowering of expenses have been gaining traction. Notably, the company has been prioritizing actions to resonate well with the prevailing crisis and burgeoning demand for necessary commodities. Realizing the need of the hour, the company has been offering a no-contact delivery option, low-contact pickup service and ship-to-home orders. Evidently, these have been aiding identical supermarket sales.

While aforementioned factors raise optimism, stiff competition in the grocery segment and an aggressive promotional environment remain primary headwinds. Again, costs related to additional employee payments and benefits, and investments undertaken to preserve safety and health of customers and team members amid the coronavirus crisis might get reflected in the to-be-reported quarter’s margins.

 

 

What the Zacks Model Unveils

Our proven model predicts an earnings beat for Kroger this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Kroger has a Zacks Rank #2 and an Earnings ESP of +0.38%.

3 More Stocks With Favorable Combination

Here are three other companies you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat:

RH (RH - Free Report) presently has an Earnings ESP of +0.94% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ollie's Bargain Outlet (OLLI - Free Report) currently has an Earnings ESP of +0.58% and a Zacks Rank #3.

Casey's General Stores (CASY - Free Report) has an Earnings ESP of +1.49% and a Zacks Rank #3 at present.

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