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Why Kroger’s Earnings Might Fall in the First Quarter

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Jun. 19 2019, Updated 11:04 a.m. ET

Recent performance

Kroger (KR) exceeded analysts’ earnings expectations in the first three quarters of fiscal 2018 but lagged estimates in the fourth quarter. Its fourth-quarter adjusted EPS fell 23.8% to $0.48, lagging analysts’ expectations by $0.04. Kroger’s fourth-quarter adjusted EPS were negatively affected by lower sales and increased expenses associated with the company’s growth plans. The company’s fourth-quarter bottom line was also affected by an additional week in the fourth quarter of fiscal 2017.

Kroger’s adjusted EPS increased to $2.11 in fiscal 2018 from $2.04 in fiscal 2017.

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Earnings expectations

Kroger will announce its results for the first quarter of fiscal 2019 on June 20. Analysts expect Kroger’s adjusted EPS to fall 1.4% to $0.72 on a year-over-year basis. Weakness in the company’s top line (an expected sales decline of 0.8% in the first quarter) and its continued investments in growth initiatives are expected to weigh its first-quarter earnings down.

Peers Walmart (WMT) and Target (TGT) announced their first-quarter earnings results last month. Walmart’s first-quarter adjusted EPS fell 0.9% to $1.13 due to its continued investments in pricing in certain markets and its weak international margins. Target’s adjusted EPS rose 15.9% to $1.53 driven by higher sales, an enhanced operating margin, and a reduced average share count due to share buybacks.

Based on the guidance it issued in March, Kroger expects its fiscal 2019 EPS to be in the range of $2.15–$2.25 in fiscal 2019. Kroger’s investments in its growth plans are expected to exert pressure on its margins and EPS in fiscal 2019. Analysts expect Kroger’s adjusted EPS to rise 3.3% to $2.18 in fiscal 2019.

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