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Kroger Posted Weak Q1 Results, Disappointed Analysts

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Jun. 25 2019, Published 10:28 a.m. ET

Kroger stock fell

Kroger (KR) stock fell 2.2% on June 20—the day the company announced its results for the first quarter, which ended on May 25. The negative sentiment for the stock continued. Kroger stock fell 3.8% on June 21. Kroger beat analysts’ sales and earnings expectations for the first quarter. The company’s top line and bottom line fell on a year-over-year basis.

Certain analysts lowered their target price for Kroger stock after its first-quarter results. Jefferies and Telsey Advisory Group lowered their respective target price for Kroger stock to $27 from $29. J.P. Morgan revised its target price to $24 from $25. Credit Suisse cut its target price to $27 from $30.

Kroger stock has fallen 19.1% on a YTD (year-to-date) basis as of June 21. The company significantly lagged Walmart (WMT), Target (TGT), and Costco (COST), which have risen 19.3%, 32.5%, and 30.6%, respectively, on a YTD basis. Kroger also lags the S&P 500, which has risen 17.7% in 2019.

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Profitability in the first quarter

Kroger’s adjusted EPS fell 1.4% to $0.72 in the first quarter. Analysts expected an EPS of $0.71. The company’s adjusted EPS fell due to lower sales and higher operating, general, and administrative expenses. Walmart’s adjusted EPS fell 0.9% to $1.13 in the first quarter due to pressure on its international business and price investments.

Kroger’s gross margin expanded by 20 basis points to 22.2% on a reported basis in the first quarter. However, the first-in-first-out gross margin, excluding fuel, fell by 40 basis points due to lower gross margin rates in the pharmacy business. Kroger’s operating margin fell to 2.4% in the first quarter compared to 2.7% in the first quarter of 2018 due to investments to support the company’s Restock Kroger program.

Kroger expects its adjusted EPS to be $2.15–$2.25 for fiscal 2019—compared to $2.11 in fiscal 2018.

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