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Why Wall Street Expects Kroger’s Revenue to Rise in 2019

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Dec. 31 2018, Updated 2:55 p.m. ET

Kroger’s revenue growth

In the first three quarters of 2018, Kroger (KR) posted revenue of $93.07 billion, which represents growth of 1.6% from $91.63 billion in the corresponding three quarters of the previous year.

Kroger’s revenue growth was driven by an increase in total retail sales to customers without fuel and supermarket fuel sales, which were partially offset by the sale of its convenience store business unit to EG Group for $2.15 billion in April. The acquisition of Home Chef and the company’s same-store sales growth of 1.7% drove the company’s total sales to customers in the first three quarters of 2018. Kroger’s supermarket fuel sales increased 21.4% due to higher average retail fuel prices and an increase of 1.9% in sales.

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Analysts expect Kroger to post revenue of $28.55 billion in the fourth quarter to take the company’s total revenue for 2018 to $121.76 billion, which represents a fall of 0.7% from $122.66 billion in 2017. The sale of its convenience store business, and one fewer week of operations in the fourth quarter of 2018 compared to the corresponding quarter of 2017, are expected to lower Kroger’s revenue in 2018. However, some of the declines are expected to be offset by growth in total sales to retail customers and supermarket fuel sales.

Target (TGT) and Walmart (WMT) are expected to post revenue growth of 4.8% and 2.8%, respectively.

Analysts’ revenue expectations for 2019

For 2019, analysts expect Kroger to post revenue of $124.47 billion in 2019, which represents growth of 2.2% from $121.76 billion in 2018.

To drive sales, Kroger has been focusing on enhancing its digital and home delivery capabilities. By the end of the third-quarter of 2018, Kroger has expanded its Ship platform, a new direct-to-customer e-commerce platform, to all its supermarket divisions. The company’s pick-up and delivery services covered more than 90% of Kroger households.

In May, Kroger had inked a deal with Ocado Group, a British online grocery retailer, to build automated warehouse facilities for Kroger’s online services. The company plans to build 20 customer fulfillment centers. The first customer fulfillment center will be built in the Cincinnati region for $55 million.

To expand its business overseas, Kroger has partnered with Alibaba (BABA). The company plans to launch its Simple Truth products on Alibaba’s Tmall platform. With all of these initiatives in place, management expects its annual digital sales to reach $9.0 billion by the end of 2019.

In comparison, analysts expect Target and Walmart to post revenue growth of 3.1% and 2.8%, respectively, in 2019.

Next in this series, we’ll look at analysts’ EPS expectations for 2018 and 2019.

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