Kroger Tops Q4 Estimates, But Expects Sales Slowdown as Pandemic-Driven Demand Wanes

Kroger, one of the world’s largest food retailers, reported better-than-expected profit in the fourth quarter but the company flagged that its pandemic-driven sales growth will fade this year.

The retailer which operates over 2,500 supermarkets in the U.S. said it earned $0.81 per share in the quarter ended on January 30, 2021, beating Wall Street consensus estimates of $0.69 cents per share.

The company said its total company sales were $30.7 billion in the fourth quarter, compared to $28.9 billion for the same period last year. Excluding fuel and dispositions, sales grew 10.7%.

“Kroger Q4 ID sales growth came in >10% y/y, FY’21 guidance was provided, the FY’21 capex range’s midpoint is<10% higher than consensus, and the all-important Investor Day is scheduled for Wed Mar 31 — clearing the investment community’s bar on each front, in our view. Q4 EPS of $0.81 beat our/consensus $0.69, driven by higher gross margin and lower interest expense, and consensus currently sits below FY’21 ID sales growth, operating profit, and EPS ranges,” noted Matt Fishbein, equity analyst at Jefferies.

However, Kroger reported a net attributable loss of $77 million, worse compared to a profit of $327 million seen in the same period a year ago. Kroger forecasts adjusted full-year same-store sales to decline in the range of 3%-5% and earnings per share in the range of $2.75-$2.95.

Kroger shares, which rose over 9% in 2020, traded about 3% higher at $34.11 on Thursday.

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 $32.43 with a high forecast of $39.00 and a low forecast of $28.00.

The average price target represents a -4.48% decrease from the last price of $33.95. From those eight analysts, none rated “Buy”, five rated “Hold” and three rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $28 with a high of $45 under a bull scenario and $15 under the worst-case scenario. The firm gave an “Underweight” rating on the multi-department stores’ stock.

Several other analysts have also updated their stock outlook. BofA Global Research lowered the price objective to $28 from $40. Stephens raised the target price to $35 from $30. Telsey advisory group slashed the price objective to $39 from $43.

Moreover, Kroger had its price objective increased by research analysts at Wells Fargo & Company to $34 from $31. The brokerage presently has an “equal weight” rating on the stock. Zacks Investment Research cut from a “buy” rating to a “hold” rating and set a $34.00 price objective on the stock. Barclays cut from an “equal weight” rating to an “underweight” rating and set a $31.00 price objective on the stock.

Analyst Comments

“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,” said 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,”

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