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Kroger (KR) Q3 Earnings Beat Estimates, FY21 Outlook Up

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The Kroger Co. (KR - Free Report) came up with third-quarter fiscal 2021 results, wherein both the top and the bottom lines not only surpassed the Zacks Consensus Estimate but also improved year over year. The company also registered growth in identical sales, without fuel. We note that the company’s digital business remains a key growth driver. Sturdy performance and sustained food at home trends prompted management to lift fiscal 2021 guidance.

This Cincinnati, OH-based company has been making significant investments to enhance product freshness and quality, and expand digital capabilities. Impressively, Kroger has been introducing new items under its “Our Brands” portfolio — launched 216 new items during the quarter under review. It has announced partnership with Kipster Farms to bring the world's first carbon-neutral, cage-free eggs to retail shelves in the United States under Simple Truth brand.

Let’s Introspect

Kroger posted adjusted earnings of 78 cents a share that surpassed the Zacks Consensus Estimate of 67 cents and increased from 71 cents reported in the prior-year quarter.

Total sales of $31,860 million came ahead of the Zacks Consensus Estimate of $31,237 million. Markedly, the metric rose from $29,723 million reported in the year-ago period. Excluding fuel, sales rose 2.9% from the year-ago period. We note that identical sales, without fuel, jumped 3.1%.

On a two-year stack basis, digital sales surged 103%, while identical sales, without fuel, increased 14%.

We note that gross margin contracted approximately 120 basis points to 21.7%. FIFO gross margin rate, excluding fuel, declined 41 basis points from the year-ago period. This decrease reflects higher supply chain costs and continued price investments, partly mitigated by sourcing benefits. Adjusted FIFO operating profit came in at $974 million, up from $871 million reported in the year-ago period.

The Kroger Co. Price, Consensus and EPS Surprise

The Kroger Co. Price, Consensus and EPS Surprise

The Kroger Co. price-consensus-eps-surprise-chart | The Kroger Co. Quote

Other Financial Aspects

Kroger ended the quarter with cash of $324 million, total debt of $13,721 million, and shareowners’ equity of $9,491 million. Net total debt increased by $50 million over the last four quarters. During the quarter, the company bought back $297 million of shares and year-to-date, repurchased $1 billion of shares. At the end of the third quarter, $511 million remains available under the share repurchase authorization announced on Jun 17, 2021.

Management estimates capital expenditures in the band of $3.1-$3.3 billion and expects to generate free cash flow between $2.4 billion and $2.6 billion in fiscal 2021.

2021 View

Management now envisions identical sales, without fuel, to be down 0.2-0.4% in fiscal 2021. The company had previously expected a decline of 1-1.5% in the metric. The company anticipates FIFO operating profit in the band $4.1-$4.2 billion, up from prior projection of $3.9-$4 billion.

Management now anticipates fiscal 2021 earnings between $3.40 and $3.50 per share. The Zacks Consensus Estimate for earnings for the fiscal year currently stands at $3.34, which could witness an upward revision in the coming days. The company had earlier forecast earnings in the range of $3.25-$3.35 per share.

Wrapping Up

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. 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. Its ‘Kroger Delivery Now’ service provides customers with food and household staples in 30 minutes.

Shares of this Zacks Rank #3 (Hold) company have advanced 29.1% so far this year against the industry’s decline of 2.1%.

Stocks to Consider

Some better-ranked stocks include, Boot Barn Holdings (BOOT - Free Report) , Tapestry (TPR - Free Report) and Target (TGT - Free Report) .

Boot Barn Holdings, the lifestyle retailer of western and work-related footwear, apparel and accessories, sports a Zacks Rank #1 (Strong Buy). Shares of the company have soared 179.7% so far this year. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Boot Barn Holdings’ current financial year sales and earnings per share (EPS) suggests growth of 54.6% and 188%, respectively, from the year-ago period. BOOT has a trailing four-quarter earnings surprise of 35.3%, on average.

Tapestry, which provides luxury accessories and branded lifestyle products, flaunts a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 29%, on average. Shares of the company have jumped 25.8% year to date.

The Zacks Consensus Estimate for Tapestry’s current financial year sales and EPS suggests growth of 14.8% and 17.9%, respectively, from the year-ago period. TPR has an expected EPS growth rate of 12.3% for three-five years.

Target, a general merchandise retailer, carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 19.7%, on average. Shares of the company have jumped 38% so far this year.

The Zacks Consensus Estimate for Target’s current financial year sales and EPS suggests growth of 14.3% and 39.9%, respectively, from the year-ago period. TGT has an expected EPS growth rate of 14.4% for three-five years.


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