Kroger Might Beat Q1 Forecasts Due to Pandemic-Led Demand

Kroger (NYSE:KR) will likely announce its results for the first quarter of fiscal 2020 on Thursday. The expectations are quite high for the grocery chain’s first-quarter sales. Investors expect the company to benefit from increased demand for essentials amid the COVID-19 pandemic.

In a business update provided in April, Kroger stated that its March comparable sales, excluding fuel, rose 30% YoY (year-over-year). Stockpiling, especially ahead of lockdowns, helped boost Kroger’s physical store and online sales. Walmart (NYSE:WMT) reported revenue of $134.6 billion in the first quarter of fiscal 2021, which reflected 8.6% growth YoY. Higher demand for groceries, cleaning supplies, and other essential items drove a 10% rise in Walmart’s US segment’s comparable sales.

Expectations from Kroger’s Q1 results

Analysts expect Kroger’s first-quarter sales to rise 9.3% YoY to $40.7 billion. They expect the company’s adjusted EPS to increase to $1.09 in the first quarter of fiscal 2020 compared to $0.72 in the first quarter of fiscal 2019. Strong sales will likely drive Kroger’s earnings. However, investments to support growth initiatives, including digital channels, and COVID-19 related expenses might weigh on the bottom line.

Despite stellar comparable sales in March, Kroger didn’t raise its fiscal guidance. In early April, the company reaffirmed its identical sales growth outlook of over 2.25%. Kroger also stated that it expects its fiscal 2020 adjusted EPS to be $2.30–$2.40 range. Analysts expect the adjusted EPS to grow 22.4% to $2.68 in fiscal 2020. The earnings expectations are based on a sales growth estimate of 3.9% to $127.0 billion.

Stock movement ahead of results

So far, Kroger stock has surged 12.2% in 2020. The stock is ahead of the 0.7% and 2.5% rise in Walmart and Costco (NASDAQ:COST) stocks, respectively. Costco reported a 5.4% increase in its May comparable sales after experiencing disappointing numbers in April.

Currently, 13 analysts recommend a “hold,” 11 recommend a “buy,” and one recommends a “sell.” Analysts see an additional upside of 7% in Kroger stock with a target price of $35.01. The company’s first-quarter results and any changes to its outlook due to COVID-19 could influence its stock price movement.

Meanwhile, Kroger continues to establish state-of-the-art fulfillment centers in partnership with Ocado. The centers will help support growing online sales. Recently, the company announced its plans to build three new customer fulfillment centers in the Great Lakes, Pacific Northwest, and West regions.