Kroger's stock price soars after Q4 results and 2022 guidance beat projections

Dive Brief:

Kroger reported fourth quarter results that beat Wall Street estimates, with comp sales up 4% and earnings per share increasing 75 cents.
The grocer also issued guidance for 2022 that came in ahead of expectations. The company expects comps to increase 2-3%. Earnings per share are expected to range from $3.75 to $3.85, ahead of the $3.44 consensus from analysts polled by Bloomberg.
Kroger’s stock price jumped to its highest level in more than a year, increasing around 11% Thursday morning.

Dive Insight:

Kroger’s better-than-anticipated Q4 results and annual forecast indicate the company’s growth is poised to accelerate once again more than two years into the pandemic.

The company’s fourth-quarter results, which spanned the three months ended Jan. 29, included comps growth that was well behind what the company saw in Q4 of 2020, when the global health crisis was still in full swing, but also well ahead of analyst projections, according to MarketWatch. Gross margins increased 3 basis points in the quarter, compared with a 43-basis-point drop for all of fiscal 2021.

During the last fiscal year, Kroger eked out a meager 0.2% comps gain and more than a dollar decline in earnings per share, underscoring the tough comparisons with pandemic-fueled 2020 the company was up against.

Sales growth is moderating at grocery chains across the U.S. as shoppers head back to restaurants and spread their spending out across more stores. But that moderation may be less severe for Kroger, which has been an industry leader in e-commerce services like pickup that remain very popular with consumers.

Amid record-high inflation, Kroger also has the scale and data assets to compete on pricing in key categories and potentially keep shoppers from defecting to lower-price retailers.

"As we look to 2022, we expect the momentum in our business to continue and have confidence in our ability to navigate a rapidly changing operating environment,” Kroger Chairman and CEO Rodney McMullen said in a statement.

During Q4, Kroger completed an “end-to-end fresh initiative” that’s helping keep perishable goods on shelves for longer. The grocer also converted cheese departments in 260 stores to its Murrays specialty brand, and launched a floral delivery pilot with DoorDash in its Houston and Dallas divisions.

Kroger also continues to build out its automated e-commerce fulfillment network alongside Ocado. It recently opened a large-scale customer fulfillment center (CFC) in the Atlanta area and announced a cross-dock facility in Oklahoma City, Oklahoma. On Wednesday, Kroger announced an additional 270,000-square-foot CFC to be built in the Cleveland, Ohio, area, serving stores in the northeastern part of that state as well as Pennsylvania.

Despite the positive results posted Thursday, Wall Street analysts believe that increasing inflation will become a drag on Kroger’s profitability as discount competitors like Walmart, Aldi and Dollar General pressure the company’s pricing strategy. In a recent note to investors, Karen Short, managing director at Barclays, said stiff competition, rising inflation and a reversal of trip consolidation as the pandemic continues to wane will be headwinds for Kroger.

Meanwhile, Joseph Feldman, senior managing director with Telsey Advisory Group, offered a more bullish take on the company's prospects for this year and beyond, stating in recent note that the firm believes Kroger’s alternative profit streams, digital momentum and continued at-home eating trends will overcome inflationary and competitive pressures.

“In 2022, we expect Kroger’s business to come in better than what is anticipated by the Street, primarily helped by the increase in at-home consumption, inflation, and greater utilization of digital, despite two years of strong growth,” he wrote.