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Why Is Kroger (KR) Down 4.8% Since the Last Earnings Report?
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A month has gone by since the last earnings report for Kroger Company (The) (KR - Free Report) . Shares have lost about 4.8% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock’s next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Kroger Q4 Earnings Meet Estimates, Decline Y-o-Y
After delivering a negative earnings surprise of 2.4% in the third quarter, Kroger reported in line earnings in the fourth quarter of fiscal 2016. The grocery retailer posted quarterly earnings of $0.53 per share that met the Zacks Consensus Estimate but declined 7% from $0.57 earned in the prior-year quarter.
Management now projects fiscal 2017 earnings in the band of $2.21 to $2.25 per share, with $0.09 coming from the 53rd week. Cincinnati-based company kept its long term earnings per share growth rate target of 8% to 11% intact.
Kroger envisions first-quarter earnings in the range of $0.55 to $0.59 per share down from $0.70 reported in the year-ago quarter. Management expects earnings in the second quarter to be marginally up, in the third quarter to be up strongly, and in the fourth quarter it is projected to be up high-single digits compared to the corresponding year-ago period without the benefit of the 53rd week.
Total sales grew 5.5% to $27,611 million from the prior-year quarter and came ahead of the Zacks Consensus Estimate of $27,357 million, marking the second straight quarter of revenue beat. Management stated that excluding fuel center sales, total sales rose 4.4%. Management stated that recent buyouts of Roundy's and ModernHEALTH added to the growth.
The company’s identical supermarket sales (stores that are open without expansion or relocation for five full quarters), excluding fuel center sales,fell marginally by 0.7% to $21,981 million, whereas including fuel center sales, identical supermarket sales inched up 0.6% to $24,453 million. Kroger envisions identical supermarket sales, excluding fuel, to be flat to up 1% in fiscal 2017.
Lately, this supermarket chain has been going through a rough patch. Stiff competition, food price deflation, an aggressive promotional environment and waning store traffic are the primary headwinds plaguing the provider of daily need items.
Operating income declined 7.5% year over year to $858 million, whereas operating margin contracted 50 basis points to 3.1%.
Other Financial Aspects
Kroger ended the quarter with cash of $310 million, total debt of $14,077 million, and shareholders’ equity of $6,710 million. Total debt increased $1,998 million from the prior-year period. The company's net total debt to adjusted EBITDA ratio jumped to 2.31 compared with 2.08 in the year-ago period. During fiscal 2016, the company bought back $1.8 billion and paid $429 million in dividends.
Management projects capital expenditures – excluding mergers, acquisitions and purchases of leased facilities – for fiscal 2017 to be in the range of $3.2 to $3.5 billion. Capital investments for fiscal 2016 totaled $3.6 billion.
Bottom Line
We believe that Kroger’s dominant position enables it to expand store base and boost market share. The company’s customer-centric business model provides a strong value proposition to consumers. The company added over 420 ClickList and ExpressLane locations in fiscal 2016, thereby bringing total online ordering locations to more than 640. However, intensifying price war among grocery stores to lure budget-constrained consumers poses concern.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been seven downward revisions for the current quarter. In the past month, the consensus estimate also shifted downward by 18.4% due to these changes.
At this time, Kroger's stock has an average Growth Score of 'C', though it is lagging a bit on the momentum front with a 'D'. However, the stock was allocated a grade of 'A' on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for value investors than growth investors.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of these revisions also indicates a downward shift. Interestingly, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.
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Why Is Kroger (KR) Down 4.8% Since the Last Earnings Report?
A month has gone by since the last earnings report for Kroger Company (The) (KR - Free Report) . Shares have lost about 4.8% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock’s next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Kroger Q4 Earnings Meet Estimates, Decline Y-o-Y
After delivering a negative earnings surprise of 2.4% in the third quarter, Kroger reported in line earnings in the fourth quarter of fiscal 2016. The grocery retailer posted quarterly earnings of $0.53 per share that met the Zacks Consensus Estimate but declined 7% from $0.57 earned in the prior-year quarter.
Management now projects fiscal 2017 earnings in the band of $2.21 to $2.25 per share, with $0.09 coming from the 53rd week. Cincinnati-based company kept its long term earnings per share growth rate target of 8% to 11% intact.
Kroger envisions first-quarter earnings in the range of $0.55 to $0.59 per share down from $0.70 reported in the year-ago quarter. Management expects earnings in the second quarter to be marginally up, in the third quarter to be up strongly, and in the fourth quarter it is projected to be up high-single digits compared to the corresponding year-ago period without the benefit of the 53rd week.
Total sales grew 5.5% to $27,611 million from the prior-year quarter and came ahead of the Zacks Consensus Estimate of $27,357 million, marking the second straight quarter of revenue beat. Management stated that excluding fuel center sales, total sales rose 4.4%. Management stated that recent buyouts of Roundy's and ModernHEALTH added to the growth.
The company’s identical supermarket sales (stores that are open without expansion or relocation for five full quarters), excluding fuel center sales,fell marginally by 0.7% to $21,981 million, whereas including fuel center sales, identical supermarket sales inched up 0.6% to $24,453 million. Kroger envisions identical supermarket sales, excluding fuel, to be flat to up 1% in fiscal 2017.
Lately, this supermarket chain has been going through a rough patch. Stiff competition, food price deflation, an aggressive promotional environment and waning store traffic are the primary headwinds plaguing the provider of daily need items.
Operating income declined 7.5% year over year to $858 million, whereas operating margin contracted 50 basis points to 3.1%.
Other Financial Aspects
Kroger ended the quarter with cash of $310 million, total debt of $14,077 million, and shareholders’ equity of $6,710 million. Total debt increased $1,998 million from the prior-year period. The company's net total debt to adjusted EBITDA ratio jumped to 2.31 compared with 2.08 in the year-ago period. During fiscal 2016, the company bought back $1.8 billion and paid $429 million in dividends.
Management projects capital expenditures – excluding mergers, acquisitions and purchases of leased facilities – for fiscal 2017 to be in the range of $3.2 to $3.5 billion. Capital investments for fiscal 2016 totaled $3.6 billion.
Bottom Line
We believe that Kroger’s dominant position enables it to expand store base and boost market share. The company’s customer-centric business model provides a strong value proposition to consumers. The company added over 420 ClickList and ExpressLane locations in fiscal 2016, thereby bringing total online ordering locations to more than 640. However, intensifying price war among grocery stores to lure budget-constrained consumers poses concern.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been seven downward revisions for the current quarter. In the past month, the consensus estimate also shifted downward by 18.4% due to these changes.
Kroger Company (The) Price and Consensus
Kroger Company (The) Price and Consensus | Kroger Company (The) Quote
VGM Scores
At this time, Kroger's stock has an average Growth Score of 'C', though it is lagging a bit on the momentum front with a 'D'. However, the stock was allocated a grade of 'A' on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for value investors than growth investors.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of these revisions also indicates a downward shift. Interestingly, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.