Overview of The Kroger Company (KR) earnings release for the 3rd quarter of their 2021 fiscal year
Category: Stock Market and Kroger Company (KR)
Date: 16 December 2021 Stock Price of Kroger (KR): $43.43 Market Capital of Kroger (KR): $32.3 billion We take a look at the 3rd quarter earnings release of their 2021 fiscal year of Kroger one of the world's largest retail companies with over 2 700 outlets. For the quarter the group reported sales of $31.8 billion and net income of $483 million
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- Comments from Chairman and CEO Rodney McMullen
Kroger's strategy to lead with fresh and accelerate with digital continues to connect with our customers. Our agility, and the commitment from our amazing associates, is allowing us to navigate current labor and supply chain conditions and provide the freshest food at affordable prices across our store and digital ecosystem"
About The Kroger Company
The Kroger Co. was founded in 1883 and incorporated in 1902. As of February 1, 2020, Kroger is one of the world’s largest retailers, as measured by revenue, operating 2,757 supermarkets under a variety of local banner names in 35 states and the District of Columbia. Of these stores, 2,270 have pharmacies and 1,567 have fuel centers. We offer Pickup (also referred to as ClickList®) and Harris Teeter ExpressLane™ — personalized, order online, pick up at the store services — at 1,989 of our supermarkets and provide home delivery service to 97% of Kroger households. We also operate an online retailer. We operate 35 food production plants, primarily bakeries and dairies, which supply approximately 31% of Our Brands units and 42% of the grocery category Our Brands units sold in our supermarkets; the remaining Our Brands items are produced to our strict specifications by outside manufacturers. Our revenues are predominately earned and cash is generated as consumer products are sold to customers in our stores, fuel centers and via our online platforms. We earn income predominately by selling products at price levels that produce revenues in excess of the costs we incur to make these products available to our customers. Such costs include procurement and distribution costs, facility occupancy and operational costs, and overhead expenses. Our retail operations, which represent 97% of our consolidated sales, is our only reportable segment.
Quick facts about Kroger:
Learn more about Kroger Company here
Quick facts about Kroger:
- Kroger Company is listed on the New York Stock Exchange under share code ticker: KR
- Number of employees of Kroger Company: 435 000
- Number of Kroger Company stores: 2 757
- 2270 of the stores had pharmacies
- 1567 had fuel centres
- Revenue of Kroger in 2019: $122.2 billion
- Earnings per Kroger share in 2019: $2.04
- Shares in issue: 788 million
- Cash on balance sheet Q1 2020: $425 million
- Stockholders equity in Kroger Company: $9.238 billion
- Stockholders equity per share in Kroger: $11.83
Learn more about Kroger Company here
Overview of Kroger's 3rd quarter 2021 earnings report
Third Quarter Highlights
- Identical Sales without fuel increased 3.1%; two-year stack increased 14.0%
- Digital Sales two-year stack grew 103%
- EPS of $0.64; Adjusted EPS of $0.78
- Operating Profit of $868 million; Adjusted FIFO Operating Profit of $974 million
- Alternative profit business delivered record third quarter operating profit
Kroger's management commentary on their 3rd quarter 2021 earnings
CINCINNATI, Dec. 2, 2021 /PRNewswire/ -- The Kroger Co. (NYSE: KR) today reported its third quarter 2021 results and will update investors on how key initiatives are positioning the company for long-term sustainable growth.
Comments from Chairman and CEO Rodney McMullen
"Kroger's strategy to lead with fresh and accelerate with digital continues to connect with our customers. Our agility, and the commitment from our amazing associates, is allowing us to navigate current labor and supply chain conditions and provide the freshest food at affordable prices across our store and digital ecosystem.
"Our focus on execution, combined with our continued discipline in balancing investments in our associates and customers with exceptional cost management, and growth in our alternative profit business allowed us to exceed internal expectations and deliver strong sales and earnings growth.
"Across all aspects of our business, we are innovating and executing with speed against the key initiatives that are transforming our business. Kroger is in a position of strength. We are committed to delivering for our associates, customers, and communities, and we remain confident in our ability to deliver total shareholder returns of 8% to 11% over time."
Comments from Chairman and CEO Rodney McMullen
"Kroger's strategy to lead with fresh and accelerate with digital continues to connect with our customers. Our agility, and the commitment from our amazing associates, is allowing us to navigate current labor and supply chain conditions and provide the freshest food at affordable prices across our store and digital ecosystem.
"Our focus on execution, combined with our continued discipline in balancing investments in our associates and customers with exceptional cost management, and growth in our alternative profit business allowed us to exceed internal expectations and deliver strong sales and earnings growth.
"Across all aspects of our business, we are innovating and executing with speed against the key initiatives that are transforming our business. Kroger is in a position of strength. We are committed to delivering for our associates, customers, and communities, and we remain confident in our ability to deliver total shareholder returns of 8% to 11% over time."
Capital Allocation Strategy
Kroger continues to generate strong free cash flow and remains committed to investing in the business to drive long-term sustainable net earnings growth, maintaining its current investment grade debt rating, and returning excess free cash flow to shareholders via share repurchase and a growing dividend over time.
Kroger's net total debt to adjusted EBITDA ratio is 1.68, compared to 1.74 a year ago (Table 5). The company's net total debt to adjusted EBITDA ratio target range is 2.30 to 2.50.
During the quarter, Kroger repurchased $297 million of shares and year-to-date, has repurchased $1 billion of shares. As of the end of the third quarter, $511 million remains on the board authorization announced on June 17, 2021.
2021 Guidance
Comments from CFO Gary Millerchip
"Driven by the momentum in our third quarter results and sustained food at home trends, we are raising our full-year guidance. We now expect our two-year identical sales stack to be in the range of 13.7% to 13.9%. We expect our adjusted net earnings per diluted share to be in the range of $3.40 to $3.50.
"Kroger is executing against its key financial and operational initiatives and continues to invest in strategic priorities that will drive attractive and sustainable total shareholder returns. We believe our business is emerging stronger through the pandemic and is well positioned to grow beyond 2021."
Kroger continues to generate strong free cash flow and remains committed to investing in the business to drive long-term sustainable net earnings growth, maintaining its current investment grade debt rating, and returning excess free cash flow to shareholders via share repurchase and a growing dividend over time.
Kroger's net total debt to adjusted EBITDA ratio is 1.68, compared to 1.74 a year ago (Table 5). The company's net total debt to adjusted EBITDA ratio target range is 2.30 to 2.50.
During the quarter, Kroger repurchased $297 million of shares and year-to-date, has repurchased $1 billion of shares. As of the end of the third quarter, $511 million remains on the board authorization announced on June 17, 2021.
2021 Guidance
Comments from CFO Gary Millerchip
"Driven by the momentum in our third quarter results and sustained food at home trends, we are raising our full-year guidance. We now expect our two-year identical sales stack to be in the range of 13.7% to 13.9%. We expect our adjusted net earnings per diluted share to be in the range of $3.40 to $3.50.
"Kroger is executing against its key financial and operational initiatives and continues to invest in strategic priorities that will drive attractive and sustainable total shareholder returns. We believe our business is emerging stronger through the pandemic and is well positioned to grow beyond 2021."
The Kroger Company (KR) stock price chart over the last 5 years
The image below shows the stock price history of The Kroger Company over the last 5 years. And to be honest its not been a good time for The Kroger Company over the last 5 years. The stock of Kroger only increased by 25.6% over the last 5 years.
The stock of Kroger Company is trading at closer to its 52 week high than it is to its 52 week low which to us is an indication that the short term sentiment and momentum of Kroger Company stock is positive at this point in time.
The stock of Kroger Company is trading at closer to its 52 week high than it is to its 52 week low which to us is an indication that the short term sentiment and momentum of Kroger Company stock is positive at this point in time.
Kroger (KR) vs Target (TGT) vs Walmart (WMT) stock over the last 5 years
The image below shows the stock price of Kroger (KR), Target (TGT) and Walmart (WMT) over the last 5 years. While all three firms are active in the retail sector in the United States and all have revenes topping billions of dollars each year, their stock price trends and performances are very different. The summary below shows the stock price returns of the three firms over the last 5 years
- Target (TGT): 241%
- Walmart (WMT): 98.6%
- Kroger: 25.6%
The Kroger Company (KR) latest stock valuation
So what are The Kroger Company stock worth considering their latest earnings release? Based on their earnings released our valuation models set a target (full value) price for The Kroger Company of $52.70 a stock (up from our last valuation report of Kroger) . We therefore believe Kroger Company stock is undervalued.
We usually recommend that long term fundamental or value investors look to enter a stock at least 10% below our target price which in this case is $52.70, a good entry point into the stock of Kroger Company would therefore be at $47.40 or below.
We expect that the stock of Kroger Company will kick upwards from its current price to levels closer to our target price/ full value price in coming weeks and months.
Since the stock of Kroger is trading at well below our suggested entry point we rate the stock of Kroger (KR) as a buy.
We usually recommend that long term fundamental or value investors look to enter a stock at least 10% below our target price which in this case is $52.70, a good entry point into the stock of Kroger Company would therefore be at $47.40 or below.
We expect that the stock of Kroger Company will kick upwards from its current price to levels closer to our target price/ full value price in coming weeks and months.
Since the stock of Kroger is trading at well below our suggested entry point we rate the stock of Kroger (KR) as a buy.
Next earnings release of Kroger Company
It is expected that Kroger Company will release their 4th quarter 2021 earnings report in mid March 2022