The leading grocery store chain raised its guidance for the fiscal year.
Kroger (NYSE:KR) stock was moving higher on Thursday, up about 2% after the leading grocery store chain raised its guidance for the rest of the fiscal year.
This comes at a time when inflation rates for groceries are rising. The August CPI report showed that food at home prices saw their highest monthly increase, 0.6%, since August 2022. The price of beef alone rose 2.7% in August, while fruits and vegetables jumped 1.6%. Further, meats, poultry, fish and eggs index increased 1.0%.
Kroger, however, has been less impacted by tariffs than some of its competitors, and has been able to keep prices relatively in check for some items while promoting cheaper internal brands.
In the second quarter, Kroger missed revenue expectations, but had strong identical store sales. It also beat earnings projections.
- Sales of $33.9 billion, same as Q2 2024 but short of estimates of $34 billion.
- Identical or same store sales up 3.4%, compared to 1.2% a year ago this quarter.
- Operating profit of $863 million, up 6% year-over-year.
- Earnings of 91 cents per share, up from 64 cents per share.
- Adjusted earnings of $1.04 per share, up from 93 cents per share and better than estimates of 99 cents per share.
“Kroger delivered another quarter of strong results, which demonstrates the clear and measurable progress we’ve made on our priorities – to simplify our organization, to improve the customer experience and to focus on work that creates the most value,” Kroger chairman and CEO Ron Sargent said.
Raising its guidance
Investors brushed aside the solid, yet mixed results, in favor of the robust outlook for the rest of the fiscal year.
The company raised its guidance for identical store sales to a range of 2.7% to 3.4% growth, up from the previous range of 2.25% to 3.25% growth.
Last quarter on the earnings call, Sargent said the company expected to benefit from more people choosing to eat at home as opposed to dining out due to rising inflation.
While food at home prices rose significantly in August, over the past 12 months, they have not risen as much as food away from home, according to the Bureau of Labor Statistics. The 12-month inflation rate for food at home prices is 2.7% compared to 3.9% for food away from home. The improved outlook suggests that Kroger sees that trend continuing.
Kroger’s second quarter results reflect continued momentum in our business. Sales growth has been strong, led by pharmacy, eCommerce and Fresh, and we are encouraged by the improvement in grocery volumes,” CFO David Kennerley said.“ As a result, we are raising our identical sales without fuel guidance to a new range of 2.7% to 3.4%.”
Kroger also raised its guidance for operating profit and earnings per share for the rest of the fiscal year to new ranges of $4.8 to $4.9 billion and $4.70 to $4.80, respectively.
Kroger has a median price target of $76 per share, which indicates 12% upside, and a reasonable P/E ratio of 18. Further, it is up 10% YTD. It looks like a solid option in uncertain times.
