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Kroger’s Q1 Results Surpass Estimates but Fail to Impress

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First-quarter performance

On June 20, Kroger (KR) reported better-than-expected results for the first quarter of fiscal 2019, which ended on May 25. However, Kroger stock was down 0.5% as of 11:26 AM ET, as both its first-quarter sales and EPS fell YoY (year-over-year).

Kroger generated sales of $37.25 billion in the first quarter and exceeded analysts’ expectation of $37.21 billion. Kroger’s first-quarter sales declined 1.2% YoY, reflecting the sale of the company’s convenience store business unit. The company’s same-store sales excluding fuel grew 1.5% in the quarter, which was a slowdown compared to its 1.9% growth in the first quarter of fiscal 2018.

Kroger’s digital sales grew 42% in the first quarter. Kroger has been investing in its digital infrastructure, and it’s also expanding its pickup and delivery facilities.

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In comparison, Walmart’s (WMT) revenue rose 1.0% to $123.9 billion in the first quarter of fiscal 2020, which ended on April 30. Walmart’s revenue was driven by same-store sales growth of 3.4% in the US and growth of 37% in US e-commerce sales partially offset by lower international sales. Target’s (TGT) net sales grew 5.0% to $17.6 billion in the first quarter driven by 4.8% same-store sales growth. Target’s comparable digital sales increased 42% in the first quarter.

Kroger’s first-quarter adjusted EPS fell 1.4% to $0.72 but came in ahead of analysts’ estimate of $0.71.

Guidance intact

Kroger continues to expect its adjusted EPS to be in the range of $2.15–$2.25 in fiscal 2019. The company expects its fiscal 2019 same-store sales growth to be in the range of 2.0%–2.25%.

Kroger is trying to enhance its business through its Restock Kroger program. Under this plan, the company is expanding the presence of its private brands, with 219 items added in the first quarter. Sales of Kroger’s private brands grew 3.3% in the first quarter mainly due to double-digit growth in Simple Truth.

The company also tested new Home Chef retail meal solutions and strengthened its digital business by expanding its number of pickup locations to 1,685 and its number of delivery locations to 2,126 in the first quarter.

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