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Kroger (KR) Q2 Earnings: Factors Likely to Impact Results

Zacks

The Kroger Co. KR is slated to release second-quarter fiscal 2018 results on Sep 13. In the trailing four quarters, it outperformed the Zacks Consensus Estimate by an average of roughly 5.8%. In the preceding quarter, the company reported positive earnings surprise of 15.9%. Let’s see how things are shaping up prior to this announcement.

Investors are keeping their fingers crossed and hoping for a positive earnings surprise from Kroger in the quarter to be reported. The Zacks Consensus Estimate for earnings in the quarter under review is 38 cents, reflecting a decline of one cent from the prior-year period. We observe that the Zacks Consensus Estimate has remained stable in the past 30 days. The Zacks Consensus Estimate for revenues is pegged at $27,823 million, up approximately 1% from the year-ago quarter.

Which Factors Hold Key to Kroger’s Performance?

The grocery industry has been undergoing a fundamental change, with technology playing a major role and the focus shifting to online shopping. Kroger has taken the stock of the situation and is in the process of giving itself a complete makeover. The company is expanding store base, introducing new items, digital coupons, and order online, pick up in store initiative. The company’s “Restock Kroger” program is also gaining traction.

In order to bolster its omni-channel capabilities, Kroger acquired meal kit provider, Home Chef. The company also partnered with British online grocery delivery company, Ocado that reinforces its position in the online ordering, automated fulfillment and home delivery space. The company’s latest deal with Nuro — the maker of driverless road vehicle — to deliver groceries at customers’ door steps using autonomous vehicles is just another game plan to take on rivals.

Kroger is looking to expand its “Scan, Bag, Pay & Go and Self-CheckOut” program to nearly 400 locations in 2018. Further, Ralphs — a unit of grocery giant — in partnership with Instacart is offering home delivery at select locations.

We believe that the company’s operational strategies present enormous opportunities to augment identical supermarket sales and enhance return on invested capital. The Zacks Consensus Estimate for identical supermarket sales, excluding fuel center sales, showcases an increase of 1.7%. Supermarket sales, without fuel, is likely to increase 7% to $23,212 million during the quarter under review.

Stiff competition, volatility in food prices and an aggressive promotional environment are the primary headwinds Kroger is encountering. Industry experts cited that the sector is jostling with rising commodity prices, higher freight costs and increasing wages. Moreover, analysts believe that incremental investments may keep margins under pressure.

The Kroger Co. Price, Consensus and EPS Surprise

The Kroger Co. Price, Consensus and EPS Surprise | The Kroger Co. Quote


What the Zacks Model Unveils?

Our proven model does not conclusively show that Kroger is likely to beat earnings estimates this quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Kroger has a Zacks Rank #3 but an Earnings ESP of -2.99%. This makes surprise prediction difficult.

Stocks With Favorable Combination

Here are three companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Darden Restaurants, Inc. DRI has an Earnings ESP of +0.71% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

NIKE, Inc. NKE has an Earnings ESP of +3.43% and a Zacks Rank #3.

Sonic Corp. SONC has an Earnings ESP of +1.49% and a Zacks Rank #3.

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