Kroger stock was lower on Friday morning, following the grocer’s second-quarter earnings. The results were better than anticipated, but the shares couldn’t hold on to early gains, as investors again fret over how well the company can sustain recent strength.
Kroger (ticker: KR) said it earned 73 cents a share on revenue that climbed 8.2% year over year, to $30.49 billion. Analysts were looking for earnings of 54 cents a share on revenue of $29.9 billion.
Same-store sales excluding fuel rose 14.6% during the quarter, also ahead of consensus. Digital sales soared 127%. The company said that it repurchased $211 million in stock in the period and that its board had authorized another $1 billion for stock buybacks.
Kroger didn’t provide a full-year outlook, citing the pandemic, but said that the boost it was seeing during the crisis meant that it should see a lift through next year. For 2020 as a whole, the company sees same-store sales rising 13%, ahead of consensus expectations, and EPS growth between 45% and 50%. Analysts are looking for earnings of $3.02 a share for the full year, a 38% increase.
Kroger was down 1.2% in Friday morning trading, to $34.34. The stock ticked lower after its previous earnings results as well. That report was ahead of expectations too, but once again investors were more concerned about how long the company could keep its recent strength going.
So while Kroger has indicated that full-year earnings will be above expectations, some investors may be concerned that it didn’t provide official guidance. Another worry might be that same-store sales, which were up 19% in the previous quarter, decelerated this earnings period.
Of course, it would be unreasonable to expect that essential retailers would be able to maintain comparable-sales growth as high as the panic buying of this spring. Yet, as we saw with Walmart (WMT), investors are closely watching this metric, and are nervous about any indication that customer interest is dropping, especially with no second round of government stimulus in sight.
According to data from Placer.ai, Kroger’s weekly visits—which dropped into negative territory in April following pantry-restocking ahead of lockdown restrictions in March—had recovered to positive territory by July.
Yet that might not have been a quick enough rebound for some, and skeptics may wonder if all of Kroger’s technology investments aren’t paying enough dividends, or meeting shoppers’ new needs.
Context is key, says Hilding Anderson, Publicis Sapient’s head of retail strategy for North America: “Any other year, we would be thrilled to see an 8% increase in revenue in grocery. This result speaks to the higher rate of shopping from home. Overall, I was a bit disappointed by their profits, which declined quarter over quarter. Kroger is well positioned to take advantage of the shift in digital consumer behaviors in the long run ...They just need to get out of their own way operationally.”
Still, the shares are up 17.5% year to date, ahead of the broader market, so the stock’s reaction may also include some simple profit-taking.
Write to Teresa Rivas at teresa.rivas@barrons.com
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September 11, 2020 at 09:46PM
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Kroger Had a Good Quarter. Its Stock Is Dropping Again. - Barron's
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