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Here's Why Kroger (KR) is Marching Ahead of the Industry

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The Kroger Co. (KR - Free Report) , one of the widely recognized names in the Retail - Supermarkets industry, has exhibited an outstanding run on the bourses in the past six months. Thanks to its operational initiatives — strengthening of omni-channel solutions, expanding customer reach and focus on product innovation — the stock has outpaced the industry and the broader Retail-Wholesale sector. In the said period, shares of Kroger have surged about 21.7% compared with the industry’s rise of 2.6%. Meanwhile, the sector declined 5%.

Additionally, an uptrend in the Zacks Consensus Estimate echoes the same sentiment. The consensus estimates for the current and next financial year have increased about 4.2% and 4.6% to $3.47 and $3.43, respectively, over the past 30 days. This Zacks Rank #3 (Hold) stock’s long-term earnings growth rate of 8.4% and a VGM Score of A highlight its inherent strength.

Fortifying Position

Kroger, which operates in the thin-margin grocery industry, has been undergoing a complete makeover not only with respect to products but also in terms of the way consumers prefer shopping grocery. The company has been adding new products to its plant-based line as well as eyeing technological expansion. Its acquisition of meal kit company, Home Chef, and partnership with British online grocery delivery firm, Ocado, reinforces its position in the online ordering, automated fulfillment and home delivery space.

In latest developments, Kroger will set up a new customer fulfillment center (CFC) in North Carolina, which will be powered by Ocado. It remains committed to opening sites in California, Dallas, TX, Forest Park, GA (Atlanta), Frederick, MD, Phoenix, AZ, Pleasant Prairie, WI, Romulus, MI (Detroit), and South Florida and the Northeast, Pacific Northwest, and West. Kroger Fulfillment Network currently operates CFCs in Groveland, FL and Monroe, OH.

This Cincinnati, OH-based company is expanding the CFCs to ensure efficient deliveries. We believe that this process of providing fresh food via interconnected, automated and innovative deliveries will help boost sales.

 

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No doubt, Kroger has been making significant investments to enhance product freshness and quality, and expand digital capabilities. Impressively, it has been introducing new items under its “Our Brands” portfolio — launched 216 new items in third-quarter fiscal 2021. It has announced a partnership with Kipster Farms to bring the world's first carbon-neutral, cage-free eggs to retail shelves in the United States under the Simple Truth brand.

We note that Kroger’s digital business remains one of its key growth drivers. Clearly, customers have been opting e-commerce solutions for their grocery and other household essentials. Considering the current scenario, the company has been focusing on a no-contact delivery option, low-contact pickup service and ship-to-home orders. It continued to expand contactless payment solutions like Kroger Pay or “Scan, Bag, Go.”

The company’s ‘Kroger Delivery Now’ service provides customers with food and household staples in 30 minutes. Apart from this, the company had earlier announced the Kroger Drone Delivery pilot in partnership with Drone Express, reinforcing the importance of timely delivery to customers.

Wrapping Up

We believe that Kroger’s focus on fresh offerings, technology and process improvements to lower costs, seamless digital ecosystem and margin-rich alternative profit business should continue contributing to growth.

3 Stocks You May Bet On

Some better-ranked stocks include MGP Ingredients (MGPI - Free Report) , United Natural Foods (UNFI - Free Report) and Target (TGT - Free Report) .

MGP Ingredients (MGPI - Free Report) , a leading producer of premium distilled spirits, branded spirits, and food ingredient solutions, sports a Zacks Rank #1 (Strong Buy). MGPI has a trailing four-quarter earnings surprise of 117.6%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for MGP Ingredients’ current financial year sales and EPS suggests growth of 55.5% and 61.4%, respectively, from the year-ago period.

United Natural Foods, which distributes natural, organic, specialty, produce, and conventional grocery and non-food products, has a Zacks Rank #2 (Buy). UNFI has a trailing four-quarter earnings surprise of 35.4%, on average.

The Zacks Consensus Estimate for United Natural Foods’ current financial year sales and earnings per share (EPS) suggests growth of 4.8% and 7.7%, respectively, from the year-ago period.

Target, a general merchandise retailer, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 19.7%, on average.

The Zacks Consensus Estimate for Target’s current financial year sales and EPS suggests growth of 13.9% and 40%, respectively, from the year-ago period. TGT has an expected EPS growth rate of 14.4% for three-five years.