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Why Is Kroger (KR) Up 3.6% Since Its Last Earnings Report?

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A month has gone by since the last earnings report for The Kroger Co. (KR - Free Report) . Shares have added about 3.6% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is KR due for a pullback? 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 Meets Q4 Earnings, Beats Sales, Guides FY18

After delivering positive earnings surprise in the third quarter of fiscal 2017, The Kroger Co. reported in line earnings in the fourth quarter. The grocery retailer posted adjusted earnings of 63 cents a share that came in line with the Zacks Consensus Estimate and increased 18.9% from the prior-year quarter.

Adjusted earnings for fiscal 2017 came in at $2.04 per share, down 3.8% from the year-ago period. Management now envisions fiscal 2018 earnings in the band of $1.95-$2.15 per share.

Total sales grew 12.4% to $31,031 million from the prior-year quarter and also came ahead of the Zacks Consensus Estimate of $30,830 million, marking the sixth straight quarter of revenue beat. Excluding fuel center sales and the 53rd week, total sales rose 2.7%. Total sales rose 6.4% to $122.7 billion during the fiscal year, wherein digital sales surged more than 90%. The company expanded ClickList to more than 1,000 locations.

Kroger has been trying all means to overcome stiff competition from bellwethers such as Walmart and Amazon. The company remains well on track to boost market share by expanding store base, introducing new items, digital coupons, and order online, pick up in store initiative. The company’s “Restock Kroger” program is gaining traction. The company hinted that the “Tax Cuts and Jobs Act” would allow it to channelize the surplus money to best possible options such as lowering of prices and improving customer services.

Kroger also entered into an agreement to sell its convenience stores to focus on its core operations. Per the deal valued $2.15 billion, Kroger will sell more than 700 stores —  operating under the banners of Turkey Hill, Loaf 'N Jug, Kwik Shop, Tom Thumb and Quik Stop — to EG Group, a Blackburn, England-based operator of convenience stores in Europe. No wonder, Kroger plans to utilize net sale proceeds to buy back shares and lower the debt load.

The company’s identical supermarket sales (stores that are open without expansion or relocation for five full quarters), excluding fuel center sales, grew 1.5% to $24,681 million, whereas including fuel center sales, identical supermarket sales jumped 2.7% to $27,833 million. Kroger now projects fiscal 2018 identical supermarket sales growth, excluding fuel, to be in the range of 1.5.

Gross margin contracted 31 basis points in the fourth quarter, while only 19 basis points for the fiscal year.

Other Financial Aspects

Kroger ended the quarter with cash of $339 million, total debt of $15,589 million, and shareholders’ equity of $6,905 million. Total debt increased $1,512 million from the prior-year period. The company's net total debt to adjusted EBITDA ratio jumped to 2.65 compared with 2.31 in the year-ago period. In the trailing four quarters, the company bought back $1.6 billion of shares and paid $444 million in dividends. The company had approximately $270 million remaining under its share buyback program.

Management projects capital expenditures — excluding mergers, acquisitions and purchases of leased facilities — to be approximately $3 billion for fiscal 2018. Capital investments totaled $3 billion for fiscal 2017.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. There have been two revisions higher for the current quarter compared to two lower.

The Kroger Co. Price and Consensus

 

The Kroger Co. Price and Consensus | The Kroger Co. Quote

VGM Scores

At this time, KR has an average Growth Score of C, a grade with the same score on the momentum front. 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.

Based on our scores, the stock is more suitable for value investors than those looking for growth and momentum.

Outlook

KR has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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