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Sept. 9, 2022, 1:50 p.m. EDT

Kroger stock leaps after grocer exceeds profit and sales forecasts, raises outlook as food-at-home trend continues

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By Tomi Kilgore

Shares of Kroger Co. jumped toward a three-month high Friday, after the grocery-store chain reported fiscal second-quarter profit and sales that rose above expectations and boosted its full-year outlook, citing continued strength in food-at-home trends.

Net income for the quarter to Aug. 13 rose to $731 million, or $1.00 a share, from $467 million, or 61 cents a share, in the same period a year ago. Excluding nonrecurring items, adjusted earnings per share rose to 90 cents from 80 cents, and beat the FactSet consensus of 82 cents.

Sales grew 9.3% to $34.64 billion, above the FactSet consensus of $34.46 billion, helped by rising fuel prices. Excluding fuel, sales increased 5.2% from last year.

Identical, or same-store sales, excluding fuel, jumped 5.8%, to exceed the FactSet consensus of 4.6% growth. Identical sales got a boost from 10.2% growth in “Our Brands” sales and an 8% rise in digital sales.

The stock /zigman2/quotes/206215053/composite KR -1.74% ran up 6.4% in afternoon trading, putting it on track for the highest close since since June 7, and enough to make it the top performer among the SPDR Consumer Staples Select Sector exchange-traded fund’s /zigman2/quotes/200697959/composite XLP +0.46% 33 equity components.

“Our second quarter results provide another proof point that Kroger has the right go-to-market strategy,” said Chief Financial Officer Gary Millerchip. “Our consistent execution of this strategy is building momentum in our business which, combined with sustained food-at-home trends, gives us the confidence to raise our full-year guidance.”

For fiscal 2022, the company raised its adjusted EPS guidance range to $3.95 to $4.05 from $3.85 to $3.95, and lifted its same-store sales growth outlook to 4.0% to 4.5% from 2.5% to 3.5%.

MKM Partners analyst Bill Kirk said the results and outlook shows that Kroger “shines” in a rational food retail environment. He reiterated his neutral rating and $55 fair value estimate on Kroger’s stock.

“[W]e believe the combination of fuel rewards and a top-tier private label program (+10.2%) distinguish Kroger in an environment where people are increasingly looking to: 1) limit miles driven; 2) find savings per gallon; 3) lower their food expenditures,” Kirk wrote in a note to clients.

Kroger Chief Executive Rodney McMullen spoke on the post-earnings conference call with analysts about the company’s customers were looking for ways to save money.

“During the quarter, digital couponing engagement hit an all-time high with 750 million digital offers downloaded, totaling almost $1 billion in savings,” McMullen said, according to a FactSet transcript of the call.

He added that customers were choosing products like frozen fruit and vegetables, which allows the products to last longer in their homes.

“Overall, customers are looking to save money and make healthier choices by cooking more meals at home rather than eating out,” McMullen said.

The stock has gained 2.0% over the past three months, while the consumer staples ETF has advanced 2.4% and the S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.12% has tacked on 1.2%.

/zigman2/quotes/206215053/composite
US : U.S.: NYSE
$ 47.57
-0.84 -1.74%
Volume: 5.15M
Dec. 2, 2022 4:00p
P/E Ratio
14.87
Dividend Yield
2.19%
Market Cap
$34.05 billion
Rev. per Employee
$348,771
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/zigman2/quotes/200697959/composite
US : U.S.: NYSE Arca
$ 77.19
+0.35 +0.46%
Volume: 6.09M
Dec. 2, 2022 4:00p
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/zigman2/quotes/210599714/realtime
US : S&P US
4,071.70
-4.87 -0.12%
Volume: 0.00
Dec. 2, 2022 5:10p
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