Leading grocery retailer The Kroger Co. (KR) will report its fiscal 2024 first-quarter earnings later this month, on June 20. In this piece, we will determine whether Kroger is a buy or a sell ahead of its earnings release.

For the first quarter, analysts expect a slight year-over-year revenue decrease to $45.11 billion, contrasting with the 1.3% increase recorded in the same quarter last year. The company's adjusted earnings per share are forecasted to sit at $1.36, down 9.9% year-over-year. Nevertheless, the company has an impressive earnings history, having beaten the consensus EPS estimates in each of the trailing four quarters.

Kroger's latest financial performance has been mixed. While the actual EPS of $1.01 fell short of the forecasted $1.13, the adjusted EPS of $1.34 surpassed expectations by an impressive 18.3%, demonstrating the company's effective financial management and strategic use of calendar adjustments.

Moreover, the company matched analysts’ revenue expectations with $37.06 billion, remaining steady year-over-year. In 2023, total sales reached $150 billion, including $2.70 billion from the 53rd week, compared to $148.30 billion the previous year. Given this performance, there's a potential for another beat in the upcoming earnings report.

In the previous earnings release, KR’s Chairman and CEO, Rodney McMullen, said, “ We are increasing customer visits and growing loyal households through the strength of our retail business, which positions Kroger for more ways to drive sustainable future growth. We expect to continue our momentum in 2024 by delivering value for customers, investing in associates and generating attractive and sustainable shareholder returns.”

Shares of KR have gained 16% over the past six months and 14.3% over the past year, closing the last trading session at $51.98.

Here are the financial aspects of KR that could influence its price performance in the near term:

Strong Financials

KR’s sales for the fiscal fourth quarter (ended February 3, 2024) increased 6.4% year-over-year to $37.06 billion. Despite this growth, the company reported a slight decline of 0.8% in identical sales without fuel. However, when adjusting for the termination of a significant pharmacy agreement, there was an underlying increase of 0.1%.

Operating profit soared 44.6% from the prior-year quarter to $1.19 billion. The company’s net earnings attributable to KR amounted to $736 million or $1.01 per common share, representing an increase of 63.6% and 62.9% year-over-year, respectively.

On an adjusted basis, Kroger's performance was even stronger. The adjusted FIFO operating profit amounted to $1.31 billion, and adjusted EPS stood at $1.34, buoyed by the benefit of an additional 53rd week. Additionally, KR reported an adjusted free cash flow of $3.22 billion for the full year, representing an 88.8% year-over-year increase.

Looking ahead to 2024, Kroger remains cautiously optimistic, with identical sales without fuel anticipated to grow between 0.25% and 1.75%. Adjusted FIFO operating profit is projected to be between $4.6 billion and $4.8 billion, while adjusted net earnings per diluted share are expected to range from $4.30 to $4.50.

These projections underscore the company’s confidence in its strategic direction and operational efficiency, emphasizing its focus on sustainable growth and operational excellence.

Mixed Analyst Estimates

Analysts expect KR’s EPS to decrease marginally year-over-year to $0.95 for the second quarter ending July 2024. However, its revenue for the current quarter is expected to increase 0.6% year-over-year to $34.06 billion.

Looking ahead, KR’s revenue and EPS for the current year (ending January 2025) are expected to decline 0.8% and 7% year-over-year to $148.82 billion and $4.43, respectively.

Nonetheless, for the fiscal year ending January 2026, KR’s revenue is expected to increase 1.7% year-over-year to $151.38 billion. The company is estimated to post an earnings per share of $4.54 in the next year, indicating a 2.6% improvement from the prior year period.

Discounted Valuation

In terms of forward non-GAAP P/E, KR is currently trading at 11.74x, 33.6% lower than the industry average of 17.68x. Likewise, its forward EV/Sales multiple of 0.37 is 77.1% lower than the industry average of 1.61x.

In addition, the stock’s forward EV/EBITDA of 7.02x is 34.8% lower than the 10.77x industry average. Also, its forward Price/Sales multiple of 0.25 compares to the industry average of 1.21.

High Profitability

KR’s trailing-12-month ROCE of 19.82% is 76.6% higher than the 11.22% industry average. The stock’s 10.13% trailing-12-month ROTC is 49.3% above the 6.78% industry average. Further, its trailing-12-month asset turnover ratio of 3x compares to the industry average of 0.83x.

POWR Ratings Exhibit Solid Prospects

KR’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. KR boasts a B grade for Value, mirroring its discounted valuation. Additionally, it also earns a B for Quality, reflecting its higher profitability metrics compared to industry standards.

Within the A-rated Grocery/Big Box Retailers industry, KR is ranked #7 out of the 36 stocks.

Beyond what we’ve stated above, we have also rated the stock for Growth, Momentum, Stability, and Sentiment. Get all KR ratings here.

Bottom Line

As customers navigate macroeconomic pressures, the company is lowering prices and offering personalized promotions and rewards to enhance savings. This approach, combined with a unique seamless shopping experience that guarantees quality, convenience, and selection, sets Kroger apart.

KR's resilient business model has proven effective in various economic environments, enabling the company to deliver sustainable and attractive returns over time. On June 1, the company paid a quarterly dividend of 29 cents per share to shareholders of record as of the close of business on May 15, 2024.

Also, the current dividend of $1.16 per share yields 2.23%, while its four-year average yield is 1.99%. The stock’s dividend payout has increased at a 17.2% CAGR over the past three years and 15.7% CAGR over the past five years. Also, it has a record of 16 years of consecutive dividend growth.

Moreover, the results from the fiscal year 2023 results further highlight the strength and resilience of Kroger’s value creation strategy. The company achieved another year of robust free cash flow and net earnings growth, reaffirming its commitment to long-term growth.

KR also continues to maintain its investment-grade debt rating, with a net total debt to adjusted EBITDA ratio improving to 1.33 (excluding the 53rd week) from 1.56 the previous year.

Given KR’s strong financials, lower-than-industry valuation, attractive dividends, and high profitability, we think it could be wise to invest in this stock now.

How Does The Kroger Co. (KR) Stack Up Against Its Peers?

While KR has an overall grade of A, equating to a Strong Buy rating, you may also check out these other stocks within the Grocery/Big Box Retailers industry: Empire Company Limited (EMLAF), Marks and Spencer Group plc (MAKSY), Koninklijke Ahold Delhaize N.V. (ADRNY), and Village Super Market, Inc. (VLGEA), all of which carry A (Strong Buy) ratings. To explore more Grocery/Big Box Retailers stocks, click here. 

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KR shares closed at $51.98 on Friday, up $0.03 (+0.06%). Year-to-date, KR has gained 15.05%, versus a 12.70% rise in the benchmark S&P 500 index during the same period.

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.

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