Were Kroger’s Earnings Really That Bad?

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Kroger Co. (NYSE: KR) reported fiscal second-quarter 2018 results before markets opened Thursday. The supermarket giant posted adjusted diluted net earnings per share (EPS) of $0.41 on total revenues of $27.87 billion. In the same period a year ago, the company reported net and adjusted EPS of $0.39 on total revenues of $27.6 billion. Second-quarter results also compare to the consensus estimates for EPS of $0.37 and $27.97 billion in revenues.

Same-store sales rose 1.6% compared with the second quarter of 2017. FactSet had a same-store sales growth estimate of 1.8%. The sales miss combined with lower-than-expected same-store sales sent investors toward the exits in Thursday’s premarket.

Adjusted EPS included a charge of $0.21 per share related to an unrealized gain in market value of Kroger’s investment in Ocado securities. Net EPS for the quarter totaled $0.62.

CEO Rodney McMullen chose to focus on the future in his comments:

We are only two quarters into our three year Restock Kroger plan, and we are making solid progress. Kroger customers have more ways than ever to engage with us seamlessly through our recently-launched Kroger Ship, expanded availability of Instacart, successful ClickList offering, and selling Simple Truth in China through Alibaba’s Tmall.

We feel good about our net earnings per diluted share and [identical] sales results in the second quarter. We expect our investments in space optimization during the first half of 2018 to become a tailwind late in the third quarter.

We are on track to generate the free cash flow and incremental FIFO operating profit that we committed to in Restock Kroger for 2018-2020, and to deliver on our long-term vision to serve America through food inspiration and uplift.

Kroger forecasts same-store sales growth for the full year at 2.0% to 2.5%, compared with the FactSet estimate of 2%. The company also raised its net EPS guidance from a range of $3.64 to $3.79 to a new range of $3.88 to $4.03. On an adjusted basis, Kroger did not change its previous EPS estimate of $2.00 to $2.15.

Analysts are looking for full-year EPS of $2.12 and sales of $122.37 billion. For the third quarter, estimates call for EPS of $0.46 and sales of $27.97 billion.

The company’s stock was punished in early trading Thursday. Shares were last seen down more than 9% at $28.68, in a 52-week range of $19.69 to $32.74. The consensus price target on the stock is $30.68.

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