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Kroger Whipsaws After Q2 Earnings Beat: What's Next for the Grocery Giant?

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On Thursday, Kroger (KR - Free Report) reported second quarter earnings before the opening bell and shares fell by as much as 3% in intraday trading. The company has struggled to stay in the green this year as they are down 7% year-to-date. The supermarket giant has been trying to increase its top and bottom lines through conventional initiatives. Let’s take a closer look at the company and how they might perform in the near future.

Company Overview and Q2 Performance

The company was founded in 1883, incorporated in 1902, and is based in Cincinnati, Ohio. Kroger is one of the nation’s largest grocery retailers, operating over 2,700 stores under banners including Kroger, Dillon’s, Mariano’s, Food 4 Less, and more. The company also manufactures and processes certain food products that are sold in its supermarkets. The company’s supermarket stores operate under four formats: combo stores, multi-department stores, marketplace stores, and price impact warehouses. The combo, multi-department, and marketplace stores also offer fuel centers.

Kroger has recently undergone efforts to revive itself after Q1 where both earnings and revenue suffered Y/Y declines. Kroger introduced digital coupons, in-store pick up services for online orders, and smart shopping lists. In Q2, earnings jumped 7.32% to $0.44 per share and revenue jumped 0.55% to $28.2 billion; revenue growth was due to a 2.2% gain in same-store sales (excluding fuel) and broke a three-quarter streak of Y/Y top-line declines. Digital sales in Q2 slowed to 31% from more than 50% in the year ago quarter.


Kroger reiterated its previous fiscal 2019 guidance of earnings between $2.15-$2.25 per share and same-store sales growth between 2%-2.25%. Our Q3 consensus estimates forecast earnings to increase 4.17% to $0.50 per share and for revenue to rally 2.08% to $28.25 billion. Our Key Company Metric estimates anticipate for supermarket sales (excluding fuel) to climb 4.73% to $24.9 billion. Looking ahead to their full fiscal year, estimates project earnings to pop 2.84% to $2.17 per share and for revenue to spike 1.35% to $122.8 billion.

Kroger is in the middle of a three-year plan to revive its business with investments in technology to better compete with companies like Walmart (WMT - Free Report) , Target (TGT - Free Report) , and Amazon (AMZN - Free Report) . Walmart and Target both have reaped the benefits of improving their online presence and Kroger is looking to do the same. Its investments in its online presence seem to have paid off in Q2 as it drove revenue out of a three-quarter slump. However, continued stiff competition has made Kroger’s margins razor thin and will continue to be headwinds for the company moving forward. Kroger is listed as a Zacks Rank #4 (Sell) and has underperformed the above-mentioned stocks YTD.

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