Earnings Preview: Kroger (KR) likely to deliver mixed Q2 results

The Kroger Co. (NYSE: KR) will publish results for the second quarter of 2024 on September 12, at 8:00 am ET. The grocery chain has been focused on driving store traffic through discounted prices and personalized promotions, as consumer spending remained under pressure from high inflation. The fate of its planned merger with Albertsons remains shrouded in uncertainty, with regulators opposing the deal citing antitrust issues.

Early this year, the Ohio-headquartered company’s stock hovered near the record highs seen two years ago. Though it pared a part of those gains later, the stock is up 14% since the beginning of 2024. A few months ago, the company increased its dividend by 10% and currently offers an above-average yield of 2.4%.

Estimates

When Kroger reports second-quarter 2024 earnings on Thursday, before the opening bell, the market will be looking for a 5% year-over-year decrease in adjusted earnings to $0.91 per share. Net sales, meanwhile, are expected to increase modestly to $34.07 billion in Q2 from $33.9 billion last year.

The company is likely to repeat the impressive earnings performance it delivered in the past four years, beating estimates consistently in every quarter during that period. In the most recent quarter, adjusted earnings decreased to $1.43 per share from $1.51 per share in Q1 2023. On an unadjusted basis, net profit dropped to $947 million or $1.29 per share in the April quarter from $962 million or $1.32 per share last year.

Sales

At $45.27 billion, net sales were broadly unchanged year-over-year in Q1 but topped expectations, marking the third consecutive beat. Identical sales, excluding fuel, were up 0.5%. The management projects a 0.25-1.75% increase in identical sales, ex-fuel, for fiscal 2024. Full-year adjusted earnings per share are expected to be in the range of $4.30 to 4.50.

Despite a pullback in consumer spending, grocery sales have remained resilient as lower prices drove budget-conscious customers to Kroger stores. There has been an increase in the number of value shoppers visiting Kroger stores, thanks to its efforts to make groceries more affordable. Nevertheless, elevated inflation, high interest rates, and reduced government benefits remain a drag on consumer confidence. When it comes to non-essential items, a section of customers continue to cut back on discretionary spending.

Merger

Kroger’s expansion initiatives took a beating after its planned merger with rival grocery company Albertsons was put on hold amid antitrust concerns. In its response to the Federal Trade Commission’s claim that the merger would lead to higher prices, the company said it would start lowering prices once the transaction is completed.

From Kroger’s Q1 2024 earnings call:

“As inflation moderates, we expect customer sentiment to continue improving. But near term, many customers are managing economic uncertainty. While we expect health and wellness profitability pressures to continue into the second quarter, our recent improvement in store execution metrics and strong customer trends gives us confidence that we are building momentum for a strong back half of the year, and we are well-positioned to deliver on our full-year guidance. As we’ve seen over recent quarters, customers continue to seek value and are shopping with us differently based on their financial situations.“

Kroger’s stock experienced weakness in recent sessions and the downtrend continued on Monday. It traded slightly above $52.00 and remained almost flat in the early hours of the session.