Kroger (KR) Q3 earnings preview: A look at the metrics investors need to watch

Grocery store chain Kroger Company (NYSE: KR) has been on a mission to transform itself into a full-fledged omnichannel retailer, amid rising competition. A few months ago, the management surprised everyone by announcing an extensive workforce reduction to streamline operations, casting a shadow over its ambitious growth program.

When the company reports its third-quarter results on Thursday before the market opens, Wall Street will be looking for earnings of $0.48 per share, unchanged from last year. The estimate for revenue is $28.2 billion.

Q2 Results

Though earnings topped expectations in the second quarter, the underlying weakness was evident from the muted sales growth, which also missed the forecast. Revenues edged up 1% to $28.2 billion, while adjusted earnings advanced 7% to $0.44 per share. During the conference call, CEO Rodney McMullen cautioned that this year, the bottom-line might not benefit from the ongoing restructuring program in a meaningful way.

Cost Management

The efforts at merchandise optimization and cost-cutting measures will have a positive effect on third-quarter results. However, a part of the gains could be offset by elevated transportation costs and fuel expenses. Margins might come under pressure from investments related to the reorganization. It needs to be noted that currently, the company is fighting to retain its market share.

Comps in Focus

Of late, there has been an improvement in store footfall after Kroger launched new facilities like self-checkout and ‘order online-pickup in-store’. Comparable sales stand to benefit from the aggressive stroe remodeling program and optimization of space, with focus on technology.

It is estimated that third-quarter sales would get a fillip from the recent launch of food halls in select locations to facilitate on-site dining, reversing the recent trend.

Also Read: Kroger might need to do more than cost-cutting

The majority of the analysts recommend hold for Kroger’s stock that slipped to a two-year low in July, before regaining momentum in recent weeks.  The stock, which traded below the $30-mark this week, is on the growth path.

Peer Performance

Last month, Walmart (WMT) reported third-quarter earnings that exceeded estimates and raised its full-year 2020 guidance, to reflect improvements in the domestic market. Aided by positive comparable store performance, revenues and earnings of the retail behemoth grew 2.5% and 7% respectively.

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