Categories Analysis, Consumer

Kroger (KR) to report Q1 earnings on Thursday. Here’s what to expect

Analysts' consensus estimate is for a year-over-year decline in earnings and broadly flat sales for Q1

Grocery chain The Kroger Co. (NYSE: KR) is preparing to report financial results for the first three months of fiscal 2024, with market watchers forecasting a modest outcome. Betting on stable customer demand across its banners and competitive pricing, the company is looking for a positive fiscal year ahead in terms of sales and profitability.  

The company’s stock has been almost flat since the post-earnings rally a few months ago, and it lost momentum in recent weeks and the weakness continued ahead of the earnings. However, KR is still up 10% since the beginning of the year. Interestingly, Warren Buffett holds a 7% stake in Kroger, making it an important component of Berkshire Hathaway’s portfolio. Over the years, the company has hiked dividends regularly, and it is likely to continue that in the future.

Estimates

The retailer’s first-quarter report is slated for release on Thursday, June 20, before regular trading starts. It is estimated to have generated an adjusted profit of $1.34 per share in the April quarter, which represents an 11% decrease from the corresponding prior-year quarter. The consensus forecast for Q1 sales is $45.04 billion, broadly unchanged from the first quarter of 2023. Interestingly, quarterly earnings beat estimates consistently for about four years.

From Kroger’s Q4 2023 earnings call:

“By delivering fresh products and personalized offers through a unique seamless shopping experience, our retail business creates traffic and loyalty that accelerates our growth opportunities in other areas such as alternative profit businesses. This generates sustainable net earnings growth and increases in cash flow, which supports capital investments to grow the business, which in turn creates more jobs for associates and more career opportunities and enables us to return excess capital to shareholders. As part of our capital investment plans for 2024, we are excited to announce that we are building more new stores in a meaningful way that will support our long-term growth model.

Pros & Cons

Kroger has been experiencing a slowdown in comparable sales lately and reported negative growth in the past two quarters. As part of its efforts to drive store traffic, the company is following a go-to-market strategy that is focused on delivering fresh products and personalized offers. The proposed acquisition of Albertsons would have been a major boost to the business, but regulators recently stalled the deal citing antitrust concerns.

Kroger is a top player in the grocery space, next only to market leaders Walmart and Costco. The company often comes under pressure from agitating union workers, demanding better wages and working conditions. While the leadership has reached agreements with the union in the past, a potential workers’ strike can disrupt operations.

Comp Sales Dip

In the final three months of fiscal 2023, Kroger’s sales increased to $37.1 billion from $34.8 billion in the comparable period of the previous year and exceeded expectations by a small margin. Identical sales, without fuel, decreased by 0.8%. Q4 earnings, excluding special items, climbed to $1.34 per share from $0.99 per share a year earlier. On an unadjusted basis, net income was $736 million or $1.01 per share in January quarter, compared to $450 million or $0.62 per share in Q4 2022. For the full fiscal year, the management expects comparable sales growth of 0.25-1.75% and forecasts adjusted earnings per share in the range of $4.30 to $4.50, which is above Wall Street’s projection.

After experiencing weakness in recent weeks, Shares of Kroger opened Monday’s session higher and traded slightly above the $50 mark in the early hours.

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