Shares of Kroger (KR - Free Report) have tumbled 14% in 2019, in dramatic contrast to its industry’s 16% climb and the S&P 500’s roughly 14% jump. The recent downturn continues the grocery’s giants dismal run over the last three-plus years.
Kroger has, however, flashed signs of life as it tries to revamp some of its business and roll out more delivery and e-commerce offerings. On top of that, second-quarter earnings season has seen retail powers Walmart (WMT - Free Report) and Target (TGT - Free Report) prove once again to Wall Street that their growth initiatives have paid off.
Kroger is the country’s largerest supermarket operator and its recent woes tell an all too familiar story in the Amazon (AMZN - Free Report) -obsessed retail age. The Cincinnati, Ohio-based firm faces increased competition from its aforementioned rivals, Walmart, Target, and Amazon, which have all pushed deeper into the grocery industry and attracted consumers to their delivery and pick-up options.
With that said, Kroger’s e-commerce investments have started to prove somewhat valuable. The company’s digital sales soared 42% in the first quarter of 2019 and management noted that home-delivery offerings or pickup were available at 93% of its locations—1,685 pickup locations and 2,126 delivery locations. Like some of its peers, Kroger has also beefed up its own brands. Last quarter, Kroger’s brand sales climbed 3.3%, with double-digit growth in Simple Truth.
Meanwhile, Kroger invested a combined total of $589 million in meal kit firm Home Chef and Ocado, which includes a high-tech fulfillment center. Kroger also has a partnership with Walgreens (WBA - Free Report) . Despite all of the positive steps, the company’s same-store sales, excluding fuel, popped 1.5% last quarter, which came in below the year-ago period and short of Wall Street estimates.
Q2 Outlook & Beyond
Looking ahead, Kroger’s Q2 revenue is projected to jump roughly 2% to $28.42 billion, based on our current Zacks Consensus Estimate. The firm’s full-year fiscal 2019 sales are then projected to climb 1.4% to reach $122.88 billion. Peeking further down the road, KR’s 2020 revenue is expected to jump 2.6% above our current year estimate.
Perhaps more importantly, our Key Company Metrics estimates call for the grocery firm’s Q2 comparable sales to jump 1.7%. This would beat the first quarter’s 1.5% growth and come on top of the year-ago period’s 1.6% identical sales expansion.
At the bottom end of the income statement, KR’s adjusted quarterly earnings are expected to pop 2.4% to $0.42 per share. Third-quarter EPS is projected to climb 4.2%, with fiscal 2019 earnings expected to jump 2.8%. Similar to the top line, Kroger’s fiscal 2020 earnings are projected to surge 7.3% above our current-year estimate.
Kroger’s overall earnings estimates have slipped slightly for Q2, as well as fiscal 2019 and 2020 over the last few months. This isn’t a great sign, but Wall Street might be pleased to see that KR’s earnings and revenue are projected to come in significantly higher in 2020 in a sign that its e-commerce and delivery options could pull in more customers.
Kroger is Zacks Rank #3 (Hold) at the moment, but that could change as we get closer to its Q2 earnings release, which is due out on Thursday, September 12. Kroger does sport “A” grades for both Value and Growth in our Style Scores system. Plus, its dividend yield rests at 2.72% at the moment. But investors should note that this is slightly inflated based on its declining stock price.
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