Kroger Earnings: When Good Isn't Good Enough

Kroger Co. (NYSE: KR) reported its fiscal first-quarter financial results before the markets opened on Thursday. The grocery chain operator said that it had $1.22 in earnings per share (EPS) and $41.5 billion in revenue, which compares with consensus estimates of $1.09 in EPS and revenue of $40.72 billion. The same period of last year reportedly had EPS of $0.72 and $37.25 billion in revenue.

During the most recent quarter, identical sales without fuel grew 19.0% year over year and digital sales grew 92%.

The company issued no new guidance for the 2020 fiscal full year, citing uncertainty surrounding the coronavirus. However, the company did note that it expects same-store sales to be higher for the year than initially anticipated. Consensus estimates call for $2.68 in EPS and $127.04 billion in revenue for the year.

Kroger’s capital allocation strategy is to use its adjusted free cash flow to invest in the business and drive profitable growth while also maintaining its current investment grade debt rating and returning capital to shareholders. Accordingly, the company’s net total debt to adjusted EBITDA ratio is 1.81, compared to 2.54 a year ago. The company’s net total debt to adjusted EBITDA ratio target range is 2.30 to 2.50.

On the books, cash and temporary cash investments totaled $2.73 billion at the end of the quarter, up from $409 million in the same period of last year.

Rodney McMullen, board chair and chief executive, pointed out success from the current Restock Kroger program, which has expanded the chain’s digital ecosystem, and the Our Brands program, which has enhanced product quality. He also noted that these investments have helped Kroger further deliver improved results, especially with this quarter.

Kroger stock traded down about 2% at $32.18 on Thursday, in a 52-week range of $20.70 to $36.84. The consensus price target is $35.01.