Kroger Earnings to Fall About 20% in Q1; Target Price $35

Kroger, one of the world’s largest food retailers, is expected to report its fiscal first-quarter earnings of $0.98 per share, which represents a year-over-year decline of about 20% from $1.22 per share seen in the same period a year ago.

The retailer, which operates over 2,500 supermarkets in the U.S., would post a revenue decline of 5.6% year-on-year to $39,222 million. However, it is worth noting that in the last four quarters, on average, the company has beaten earnings estimates about 19%.

“Kroger is likely to have faced tough year-over-year comparisons in sales, as COVID-19 benefits are lapped. Industry experts believe that lower at-home consumption activities and a drop in pantry-loading trends might have hurt the company’s first-quarter top-line performance,” noted analysts at ZACKS Research.

Kroger shares rose over 20% so far this year. The stock ended 0.8% lower at $38.4 on Monday.

Analyst Comments

“The company has been making every effort to strengthen position not only with respect to products but also in terms of the way consumers prefer shopping. The company’s “Restock Kroger” program involving investments in omni-channel platform, identifying margin-rich alternative profit streams, merchandise optimization, and lowering of expenses has been gaining traction,” noted analysts at ZACKS Research.

“These aided the company to post decent fourth-quarter fiscal 2020 results, wherein both the top and the bottom lines grew year-over-year. However, Kroger expects tough year-over-year comparison in fiscal 2021, and signaled a decline in identical sales, without fuel. Pandemic-induced demand is likely to moderate, as vaccination drive gather space and consumers return to the old normal.”

Kroger Stock Price Forecast

Eight analysts who offered stock ratings for Kroger in the last three months forecast the average price in 12 months of $35.00 with a high forecast of $38.00 and a low forecast of $31.00.

The average price target represents a -8.85% from the last price of $38.40. Of those 8 analysts, none rated “Buy”, five rated “Hold” and three rated “Sell”, according to Tipranks.

Morgan Stanley gave the stock price forecast of $29 with a high of $45 under a bull scenario and $16 under the worst-case scenario. The firm gave an “Underweight” rating on the software company’s stock.

“Kroger (KR) is one of the largest conventional food retailers, with competitive advantages including leading scale, an advanced customer data science platform, and ramping digital capabilities. 2020 was a historically strong year for KR driven by COVID-19 uplifts, but KR’s share gains are already normalizing we anticipate an industry sales slowdown in 2021-2022 that is underappreciated in Street estimates,” noted Simeon Gutman, equity analyst at Morgan Stanley.

“Meanwhile we model EBIT margins to return to pre-COVID-19 levels by 2022 as normalizing promotional activity and e-comm pull-forward pressure margins. Longer-term we continue to struggle to model a path to sustainable EBIT growth and margin stabilization.”

Several other analysts have also updated their stock outlook. Oppenheimer raised the price target to $38 from $34. BMO lifted the price target to $36 from $34. Jefferies increased the price target to $37 from $33. UBS raised the target price to $35 from $33. Deutsche Bank lifted the target price to $36 from $35.

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