Why a Kroger Earnings Beat Is Not Enough for Investors

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Kroger Co. (NYSE: KR) reported its fiscal second-quarter financial results before the markets opened Friday. Despite the growing numbers from last year, the mixed earnings should have held up this stock. However, looking at the longer term, guidance is ultimately what brought this stock down.

The company said that it had $0.47 in earnings per share (EPS) on $26.6 billion in revenue. This compares to consensus estimates from Thomson Reuters of $0.45 in EPS and revenue of $26.79 billion. The same period from last year reportedly had EPS of $0.44 and $25.54 billion in revenue.

During this quarter, total sales, excluding fuel, increased 7.3% year over year. In the same time, total sales, excluding fuel and Roundy’s, increased 2.9%.

In terms of guidance for the 2016 fiscal year, the company lowered its EPS estimate to range of $2.10 to $2.20 from $2.19 to $2.28. For identical supermarket sales growth, excluding fuel, the company expects the remainder of 2016 to be in the 0.5% to 1.5% range, which is 1.4% to 1.8% for the full year.

Consensus estimates from Thomson Reuters call for $2.22 in EPS on $116.28 billion in revenue for the fiscal year.

Rodney McMullen, chairman and CEO, commented:

I’m very proud of our associates for their determined focus on always making a difference for our customers. Their execution of our Customer 1st Strategy in a deflationary environment helped deliver growth in identical store sales, units and market share. We are focused on long-term performance over a three-to-five year horizon. We have the right strategy, the right people, and the financial flexibility to execute our strategy, which allows us to continue investing in our associates and our business and growing market share. By staying on our strategy, we create long-term value for our shareholders.

On the books, Kroger’s cash and store deposits in-transit totaled $1.28 billion at the end of the quarter. In the same period of last year it had $1.20 billion.

Shares of Kroger closed Thursday at $31.31, with a consensus analyst price target of $39.19 and a 52-week trading range of $30.70 to $42.75. Following the release of the earnings report, the stock was down 0.7% at $31.10 in early trading indications Friday.