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Should You Buy Grocery Stocks, WMT, COST, TGT, After Kroger's Strong Quarter?

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Shares of Kroger (KR - Free Report)  surged over 10% on Thursday to inch near their 52-week high after the company posted better-than-expected quarterly results. Investors were also likely pleased to see that the grocery chain’s e-commerce initiatives started to pay off. The question is should investors think about buying grocery stocks as Amazon-based (AMZN - Free Report) fears seem to have been overblown.

Kroger

Kroger posted adjusted quarterly earnings of $0.73 per share, which came in well above our Zacks Consensus Estimate of $0.63 per share and marked a nearly 26% climb from the year-ago quarter. The company’s Q1 revenues climbed over 3% to $37.53 billion, topping our estimate.

The company also raised its earnings guidance, but what really stood out were Kroger’s online sales. Kroger saw its digital sales skyrocket 66%. Meanwhile, Kroger announced that it upped its investment in online British supermarket delivery company Ocado to help improve its online ordering, automated fulfillment, and home delivery capabilities. 

Furthermore, Kroger announced a merger with private meal kit powerhouse Home Chef in a move to compete against the likes of Blue Apron (APRN - Free Report) , HelloFresh, and Plated—which supermarket chain Albertsons bought last year. Kroger also expanded its partnership with grocery delivery startup powerhouse Instacart, which works with companies from CVS (CVS - Free Report) to Aldi.

Kroger stock is currently a Zacks Ranks #3 (Hold), and might not experience Thursday’s gains for a while now. With that said, the rest of the grocery industry has also made some significant changes in order to compete in the age of online shopping and delivery.

Industry Overview

Nielsen (NLSN - Free Report) and the Food Marketing Institute released their second-ever "Digitally Engaged Food Shopper" study earlier this year, which stated that within the next five to seven years 70% of consumers will do at least some grocery shopping online. FMI and Nielsen also estimated that people will spend $100 billion a year in this budding industry.

 

Walmart (WMT - Free Report)

Walmart in March announced its plan to expand its online grocery delivery option to more than 100 metro areas by the end of the year, up from just six. The big-box giant also offers an order online and curbside pickup up service called “Grocery Hero” at 1,200 stores, with the company expected to add the service at 1,000 more locations by end of the year.

Investors should note that Walmart’s first-quarter e-commerce sales surged by 33% in the U.S. Looking ahead, the company is projected to see it quarterly earnings climb by 12%, based on our current Zacks Consensus Estimate. The company’s revenues are expected to pop 1.8% to $125.53 billion. WMT is currently a Zacks Rank #3 (Hold) that rests well below its 52-week high.

Costco (COST - Free Report)

Shares of Costco hit a new all-time high of $211.11 per share yesterday on the back of Kroger’s strong quarter. The big-box giant, like its competitors, has also made a new-age push that includes its launch of CostcoGrocery last fall, which offers two-day delivery for non-perishable food and household supplies nationwide. The company also expanded its same-day delivery service to “most metropolitan” areas through an updated partnership with Instacart.

The wholesale retailer’s quarterly revenues popped by 12% to $32.36 billion, with e-commerce comp sales up 36.8%. Looking ahead, Costco’s full-year earnings are projected to surge nearly 18%, while its full-year revenues are expected to reach $139.98 billion, representing an 8.5% jump. COST is also currently a Zacks Rank #3 (Hold), but sports an overall “A” VGM score based on its strong Value, Growth, and Moment grades.

Target (TGT - Free Report)

Target introduced its online ordering and curbside pickup service called “Drive-Up” in more than 250 stores last quarter and expanded its “Restock” program nationwide, which allows customers throughout the U.S. to shop from thousands of popular items for next day delivery.  

The Minneapolis-based retailer saw its digital sales surge 28% in Q1, on top of a 21% climb in the year-ago period. Target also introduced same-day delivery at over 700 locations, which was made possible by its $550 million December 2017 purchase of grocery delivery startup Shipt.

Target is expected to see its quarterly earnings climb by 13%, while its revenues are projected to reach $17.3 billion, which would mark 5.3% growth. TGT stock currently sits near its 52-week high and is a Zacks Rank #3 (Hold) that sports a “B” grade for Growth and Value in our Style Scores system.

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