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Kroger (KR) Down 6.3% Since Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for The Kroger Co. (KR - Free Report) . Shares have lost about 6.3% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Kroger Q1 Earnings Beat but Decline Y/Y, Outlook Cut

After reporting in line earnings in the final quarter of fiscal 2016, The Kroger Co. commenced fiscal 2017 with a positive earnings surprise. The grocery retailer posted first quarter earnings of $0.58 per share that beat the Zacks Consensus Estimate by a penny but declined 18.3% from the prior-year quarter. Subsequently, management trimmed its earnings projection.

Management now projects fiscal 2017 earnings in the band of $2.00–$2.05 per share down from earlier estimate of $2.21–$2.25. Cincinnati-based company kept its long term earnings per share growth rate target of 8–11% intact.

Total sales grew 4.9% to $36,285 million from the prior-year quarter and came ahead of the Zacks Consensus Estimate of $35,507 million, marking the third straight quarter of revenue beat. Excluding fuel center sales, total sales rose 2.9%. Management stated that recent buyout of ModernHEALTH added to 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 0.2% to $28,627 million, whereas including fuel center sales, identical supermarket sales grew 1.6% to $32,252 million. Kroger continues to envision 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, volatility in food prices, an aggressive promotional environment and waning store traffic are the primary headwinds plaguing the provider of daily need items.

Operating income declined 48.2% year over year to $622 million, whereas operating margin contracted 180 basis points to 1.7%.

Other Financial Aspects

Kroger ended the quarter with cash of $335 million, total debt of $13,444 million, and shareholders’ equity of $6,135 million. Total debt increased $1,058 million from the prior-year period. The company's net total debt to adjusted EBITDA ratio jumped to 2.33 compared with 2.12 in the year-ago period. In the trailing four quarters, the company bought back $1.5 billion of shares and paid $438 million in dividends.

Management continues to project capital expenditures – excluding mergers, acquisitions and purchases of leased facilities – for fiscal 2017 to be in the range of $3.2–$3.5 billion.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been eight revisions lower for the current quarter. In the past month, the consensus estimate has shifted down by 15.3% due to these changes.

Kroger Company (The) Price and Consensus

 

VGM Scores

At this time, the stock has a strong Growth Score of 'A', though it is lagging a lot on the momentum front with an 'F'. 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 'A'. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for value and growth investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. It's no surprise that the stock has a Zacks Rank #5 (Strong Sell). We are expecting a below average return from the stock in the next few months.




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