Kroger (KR) is set to announce its second-quarter results on September 12. Whereas we think a surprise from Kroger is unlikely, we expect the company’s top and bottom lines to return to marginal YoY (year-over-year) growth.

Kroger’s top line has fallen in the last three quarters, while its bottom line has fallen in the last two. Its supply-chain and price investments and planned divestiture of its convenience store business have continued to hurt the company.

During Kroger’s last reported quarter, its top and bottom lines fell 1.2% and 1.4%, respectively. Although the company’s identical sales improved by 1.5%, they missed its target of 2.0%–2.25%. In the second quarter, analysts expect Kroger’s revenue to rise about 2% YoY to $28.4 billion, and its adjusted EPS to rise marginally to $0.41.

Identical sales to improve but lag behind peers’

Kroger is expanding its omnichannel offerings and focusing on its own brands to drive sales and profitability. It reports that demand for its brands is healthy and their sales improved 3.3% in the first quarter, during which the company introduced 219 of its own brands. Meanwhile, it expanded its pickup and delivery services to 1,685 and 2,126 locations, respectively, and continued to invest in prices.

During its first-quarter conference call, Kroger stated that its identical sales are trending better in the second quarter than in the first, moving toward its full-year target. While we expect the company’s identical sales growth to improve sequentially, it could continue to lag behind peers’. Walmart’s (WMT), Target’s (TGT), and Costco’s (COST) comps have grown impressively over the past several quarters.

Target’s comps, which have increased by about 5% in the last five quarters, improved by 3.4% in the second quarter. As for Walmart, its US business has continued to generate stellar comps growth, led by its expanded pickup and delivery services. During the second quarter, Walmart’s US comps grew by 2.8%. Meanwhile, Costco’s astounding comps growth has surpassed peers’. The retailer’s domestic sales and traffic have stayed strong. We expect Target’s and Costco’s comps to continue to outgrow peers’.

Kroger stock stays low

Kroger’s underperformance of peers has taken a toll on its stock. This year, the stock is down about 10%, while Target, Costco, and Walmart stocks have risen 66.2%, 49.1%, and 23.2%, respectively. Owing to its decline, Kroger stock’s forward PE multiple is 11.2x, significantly lower than peers’ average of 25.6x.

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