Kroger Beats Q2 Earnings Estimate, Comps Lag Peers’

  • Kroger posted mixed second-quarter results.
  • The company’s bottom line came ahead of expectations, while its sales fell short.
  • Its comps improved sequentially but lagged behind peers’.

Kroger (KR) announced its fiscal 2019 second-quarter results today. Whereas the retailer’s top line returned to growth after falling for three quarters, its sales fell short of Wall Street’s estimate.

During the second quarter, Kroger’s comps improved sequentially. The company’s comps without fuel rose 2.2%, within its target of 2.0%–2.25%. In the first quarter, Kroger’s comps rose 1.5%.

Commenting on the results, Kroger CEO Rodney McMullen stated that the second-quarter comps (without fuel) were the best since the company launched its transformation plan. Although Kroger’s comps improved, they lagged behind peers’. In the second quarter, Target’s (TGT) comps rose 3.4%, while Walmart’s (WMTUS comps rose 2.8%. Target’s and Walmart’s traffic has continued to grow, boosted by their digital transformation. The retailers’ same-day delivery, expanded offerings, and value pricing have boosted their comps.

Kroger is expanding its privately owned brands and pickup and delivery services. The company launched 203 brands in the second quarter, and 219 in the first quarter. It expanded its pickup and delivery services to 1,780 and 2,225 locations, respectively, in the second quarter.

Kroger’s strategy is boosting its comps. However, Walmart, Target, and Costco have continued to defend and grow their market share. Costco’s robust comps have outgrown peers’ in the past several quarters.

Kroger’s second quarter in brief

In the second quarter, Kroger’s revenue rose 1.1% YoY (year-over-year) to $28.2 billion, falling short of analysts’ estimate of $28.4 billion. Its comps without fuel increased by 2.2%. The company’s FIFO (first-in, first-out) gross margin rate fell by 29 basis points, reflecting continued weakness in its pharmacy business.

The retailer’s adjusted EPS rose 7.3% YoY to $0.44, beating analysts’ estimate of $0.41. Walmart and Target also beat analysts’ EPS estimates in the second quarter.

Kroger has reiterated its full-year guidance and forecasts comps growth of 2.0%–2.25%. It expects its adjusted EPS to rise 2%–7% to $2.15–$2.25. KR stock was flat in premarket trading today.