Is Kroger's Updated Guidance Really That Exciting?

Chris Lange

Kroger Co. (NYSE: KR) shares jumped on Tuesday after the grocery chain announced an update to its 2019 full-year guidance, as well as a business update.

As part of this announcement, the board of directors has approved a $1 billion share repurchase program, replacing the existing authorization that has approximately $546 million remaining.

Kroger reconfirmed its 2019 guidance on identical sales, adjusted operating profit, earnings per share (EPS) and alternative profit streams. The company also set financial targets for 2020.

For 2019, the company expects to see EPS in the range of $2.15 to $2.25, with an operating profit between $2.9 billion and $3.0 billion and identical sales growth of 2.0% to 2.25%. The consensus estimates are $2.19 in EPS and $122.51 billion in revenue for the year.

As for 2020, Kroger is looking for EPS in the range of $2.30 to $2.40 and identical sales growth, excluding fuel, to be greater than 2.25%. Consensus estimates call for $2.30 in EPS and $125.55 billion in revenue.

Kroger is targeting total shareholder return of between 8% and 11% beyond 2020. This will be driven by 3% to 5% growth from improved earnings and growth in the company’s free cash flow payout rate through a combination of share repurchases and dividends. Management was quick to say that this range excludes any potential change in its price-to-earnings multiple and the optionality for additional growth beyond 2020 created through strategic partnerships.

Kroger Chief Financial Officer Gary Millerchip commented:

Kroger’s value creation model is strong and durable. We are pleased to see identical store sales momentum is building and we expect this trend to continue into 2020 and beyond. We are also delivering adjusted earnings per diluted share growth for our shareholders through the Restock Kroger timeframe, supported by a disciplined approach to returning cash to investors.

Shares of Kroger traded up about 11% on Tuesday to $27.81, in a 52-week range of $20.70 to $31.98. The consensus price target is $26.86.