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Kroger Stock Soars on 2020 Outlook, Share Buyback Plan

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Kroger (KR) stock surged 11.4% as of 2:10 PM ET today after the company announced optimistic guidance for fiscal 2020. Kroger expects its fiscal 2020 adjusted earnings per share between $2.30 and $2.40. Excluding fuel, the company forecasts identical sales growth of over 2.25%. The company’s guidance came in ahead of analysts’ EPS expectation of $2.30 and same-store sales growth of about 2.0% for fiscal 2020.

Kroger announced its fiscal 2020 outlook and provided other key updates ahead of its Investors Conference at NYSE today.

Kroger confirms fiscal 2019 guidance

Intense competition from Amazon (AMZN), Walmart (WMT), and Target (TGT) has been a major threat for Kroger. On October 29, stocks of Kroger and peers fell after Amazon announced that it will now offer the Amazon Fresh Delivery service for free to its Prime members. Amazon was previously charging $14.99 for this service. Amazon’s acquisition of Whole Foods has disrupted the grocery space.

In the second quarter, Kroger’s identical sales, excluding fuel, grew 2.2%. However, it lagged the 3.4% and 2.8% rise in same-store sales of Target and Walmart.

Today, Kroger reaffirmed its fiscal 2019 identical same-store sales growth estimate in the range of 2% to 2.25%. It also reiterated its adjusted EPS outlook between $2.15 to $2.25. The company’s Restock Kroger strategic plan is driving improvements to its business.

The company is also enhancing its product assortments, ensuring faster delivery, lowering prices, and investing in technology to attract customers. Under its Restock Kroger program, the company is also expanding its private-label offerings. Also, it has partnered with British online grocer Ocado to build automated warehouses.

Meanwhile, Walmart and Target have also been making significant investments to combat the threat to their business from Amazon. At the end of the fiscal second quarter, Walmart US offered grocery pickup service at over 2,700 locations. Plus, the company ended the quarter with over 1,100 delivery locations in the domestic market. Also, it’s attracting customers through the Walmart InHome Delivery service. Notably, Walmart’s NextDay delivery service for online orders now covers about 75% of the US population.

Target’s same-day fulfillment facilities, including Order Pick Up, Drive Up, and Shipt, contributed 1.5 percentage points of its second-quarter same-store sales growth.

New share buyback plan

Today, Kroger also pleased investors with its new share buyback plan. The board of directors authorized a new $1 billion share repurchase program, and this new program replaces the existing plan that had $546 million in authorizations remaining.

Kroger plans to repurchase shares worth $500 million to $1 billion in fiscal 2020. Moreover, it aims to generate total shareholder return in the range of 8%–11% beyond 2020.

Year-to-date stock movement

Kroger stock was down 9.1% year-to-date as of November 4. In comparison, Walmart stock and Target stock were up 26.2% and 64.6%, respectively. Kroger’s year-to-date movement reflects investors’ disappointment with the company’s performance compared to its peers. On October 10, Jefferies lowered its rating for Kroger stock to “hold” from “buy.” Significantly, Jefferies was skeptical about the company’s long-term growth strategy.

But the spike in Kroger’s stock price today puts its year-to-date movement in the positive zone. Currently, 53% or 13 out of 25 analysts have a “hold” recommendation for Kroger stock. Meanwhile, nine analysts rated it a “buy” while three had a “sell” rating.

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