Kroger Co (NYSE: KR) announced its quarterly earnings on Thursday, March 3, 2022, in which it released profit guidance on top of a two-year demand surge for groceries induced by the pandemic.
What to look for: The robust guidance underscores how the company is on the shift in consumer behavior following the pandemic. Kroger is investing in e-commerce capabilities and adding more fresh food to its offerings. CEO Rodney McMullen indicated that they expect momentum in the business to continue, and they are confident of navigating the fast-changing market conditions.
Earnings: Stockearning’s Estimated EPS was pegged at $0.74 per share, but the company reported earnings of $0.91. The company had a profit of $566 million or $0.75 per share and improved from a loss of $0.1 per share a year ago. For the fiscal year 2022, the company anticipates its adjusted earnings per share to be between $3.75 and $3.85, well above Street estimates of $3.44. Historical EPS Performance shows that in the past 12 quarters, the company has topped estimates 29 times (80%), matched three times (8%), and missed four times (11%).
Revenue: in the fourth quarter, the company reported total revenue of $33 billion compared to $30.7 billion a year ago, representing a growth of almost 3.7%. Wall Street had anticipated sales of $32.68 billion. Instead, the company reported sales of $137.9 billion relative to $132.5 billion a year ago for the full year. The company expects to grow sales by 2% to 3% without fuel.
Stock movement: KR shares have gained 22.8% since the company released its last earnings release. Interestingly, following the earnings release, the company’s shares have been UP 26 times in the past 37 quarters. So, the historical price reaction suggests a 55% probability of the share price going UP following the earnings release. According to the Stockearning algorithm, the predicted volatility on the first day is +/-4%, while the predicted volatility on the seventh day is +/-5%.
What analysts are saying: Wells Fargo analyst Edward Kelly raised his price target on the stock from $42 to $47 after Kroger offered an update that the analyst says "was better than expected." Still, he maintains a Sell rating on the stock. He told investors that the firm seems prepared to achieve the trifecta of favorable communication to stockholders with its analyst day on Friday. Still, Kelly doesn't think the risk/reward at $54 a share is at all attractive.
Inflation is projected to continue to rise, and pass-through stays strong, according to the company's Q1 projection, making Kelly's previous downgrade "at least a quarter too early." However, he adds that substantial upside going forward is getting hard to imagine.
Evercore ISI analyst Michael Montani commenced coverage on Kroger with a positive strategic call on the stock and added KR to his "Tactical Outperform" list ahead of the Q3 2021 earnings release and business update. Montani believes Kroger's defensive strategy will enable the shares to outperform in the next month, as he believes the company will report a surprise and increase its Q4 report and 2022 outlook. As a result, he has a Hold rating on the shares with a price target of $50.
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