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Kroger's (KR) Q1 Earnings Surpass Estimates, Increase Y/Y

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The Kroger Co. (KR - Free Report) came up with first-quarter fiscal 2020 results, wherein both top and bottom lines not only beat the Zacks Consensus Estimate but also improved significantly from the prior-year period. Notably, this was the second straight quarter of positive earnings surprise. Impressively, this Cincinnati, OH-based company prioritized its actions to resonate well with the prevailing crisis and burgeoning demand for essential commodities.

Driven largely by coronavirus-led demand, Kroger registered a sharp rise in sales across both brick-&-mortar stores and digital channels. Understanding the need of the hour, the company offered a no-contact delivery option, low-contact pickup service and ship-to-home orders. It also waived pickup fees with no minimum purchase requirements and continued to expand contactless payment solutions like Kroger Pay. Also, the company implemented pickup-only location in Cincinnati.

Kroger has been making prudent investments to bolster omni-channel operations, improve supply chain and increase manpower to ensure swift customer service amid such challenging times.

Let’s Introspect

Kroger posted adjusted earnings of $1.22 per share that surpassed the Zacks Consensus Estimate of $1.12 and increased sharply from 72 cents reported in the prior-year quarter.

Total sales of $41,549 million came ahead of the Zacks Consensus Estimate of $40,934 million. The metric improved 11.5% year over year. Excluding fuel and dispositions, top line improved 19.1% from the year-ago period. The company’s digital sales surged 92%, while identical sales, without fuel, grew 19% compared with 22% and 2%, respectively, reported in the preceding quarter.

We note that gross margin increased 210 basis points to 24.3%. FIFO gross margin, excluding fuel, expanded 44 basis points from the year-ago period owing to sales leverage related to shrink, transportation, warehousing and advertising expenditures. Adjusted FIFO operating profit came in at $1,453 million, up from $957 million reported in the year-ago period.

Although management did not reiterate or provide new projection for fiscal 2020, it expects the company to surpass the guidance shared on Apr 1. The company had earlier projected fiscal 2020 earnings between $2.30 and $2.40 per share, identical sales, excluding fuel, to be above 2.25% and adjusted FIFO operating profit in the band $3-$3.1 billion.

The Kroger Co. Price, Consensus and EPS Surprise

The Kroger Co. Price, Consensus and EPS Surprise

The Kroger Co. price-consensus-eps-surprise-chart | The Kroger Co. Quote

Other Financial Aspects

Kroger ended the quarter with cash of $425 million, total debt of $13,471 million, and shareowners’ equity of $9,328 million. Net total debt decreased by $2,255 million over the last four quarters.

Wrapping Up

Kroger, which operates in the thin-margin grocery industry, has been making every effort to strengthen position not only with respect to products but also in terms of the way consumers prefer shopping grocery. The company has been focusing on plant-based products and eyeing technological expansion.

Notably, the company’s “Restock Kroger” program involving investments in omni-channel platform, identifying margin-rich alternative profit streams, merchandise optimization, and lowering of expenses has been gaining traction.

Kroger sports a Zacks Rank #1 (Strong Buy). We note that the stock has advanced 14.1% against the industry’s decline of 0.2% in the past six months. . You can see the complete list of today’s Zacks #1 Rank stocks here.

Other Stocks to Consider

Sprouts Farmers Market (SFM - Free Report) has a long-term earnings growth rate of 9.2% and sports a Zacks Rank #1 currently.

SpartanNash (SPTN - Free Report) , also a Zacks Rank #1 stock, has a positive earnings surprise of 76.3% for the last reported quarter.

Ollies Bargain Outlet (OLLI - Free Report) has a long-term earnings growth rate of 19.2%. Currently, it carries a Zacks Rank #1.

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