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Category: Stock Market and Kroger Company (KR)
Date: 18 June 2021 Stock Price of Kroger (KR): $39.18 Market Capital of Kroger (KR): $29.7 billion We take a look at the 1st 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 $41.2 billion and net income of $143 million
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- Comments from Chairman and CEO Rodney McMullen
Kroger is even better positioned to connect with our customers than we were prior to the pandemic as a result of our relentless focus on leading with fresh and accelerating with digital"
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 1st quarter 2021 earnings report
First Quarter Highlights
- Identical Sales without fuel decreased 4.1%; two-year stack increased 14.9%
- Digital sales grew 16%; two-year stack grew 108%
- EPS of $0.18; Adjusted EPS of $1.19
- Operating Profit of $805 million; Adjusted FIFO Operating Profit of $1,375 million
- Record alternative profit business growth fueled by Retail Media and Kroger Personal Finance
- Kroger's Board of Directors approves new $1 billion share repurchase program
Kroger's management commentary on their 3rd quarter 2020 earnings
CINCINNATI, June 17, 2021 /PRNewswire/ -- The Kroger Co. (NYSE: KR) today reported its first quarter 2021 results and will update investors on how Leading with Fresh and Accelerating with Digital initiatives are positioning Kroger for long-term sustainable growth
Comments from Chairman and CEO Rodney McMullen
"Kroger is even better positioned to connect with our customers than we were prior to the pandemic as a result of our relentless focus on leading with fresh and accelerating with digital. I am incredibly proud of our amazing associates who continue to be there for our customers, communities, and each other when they need us most and who strive to deliver a full, fresh, and friendly experience to every customer, every time.
"Kroger's strong execution delivered identical sales results in the first quarter that exceeded our original expectations. Customers are responding to the investments we have made in digital, as evidenced by our triple-digit growth in digital sales since the beginning of 2019. We were disciplined in driving costs out of the business and we achieved record growth in Kroger's alternative profit business, demonstrating the power and attractiveness of our long-term model.
"We are raising our guidance based on the strength of our results and we remain confident in our ability to deliver consistently attractive total shareholder return."
Comments from Chairman and CEO Rodney McMullen
"Kroger is even better positioned to connect with our customers than we were prior to the pandemic as a result of our relentless focus on leading with fresh and accelerating with digital. I am incredibly proud of our amazing associates who continue to be there for our customers, communities, and each other when they need us most and who strive to deliver a full, fresh, and friendly experience to every customer, every time.
"Kroger's strong execution delivered identical sales results in the first quarter that exceeded our original expectations. Customers are responding to the investments we have made in digital, as evidenced by our triple-digit growth in digital sales since the beginning of 2019. We were disciplined in driving costs out of the business and we achieved record growth in Kroger's alternative profit business, demonstrating the power and attractiveness of our long-term model.
"We are raising our guidance based on the strength of our results and we remain confident in our ability to deliver consistently attractive total shareholder return."
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.
As previously disclosed, Fred Meyer and QFC and four local unions ratified an agreement for the transfer of liabilities from the Sound Retirement Trust to the UFCW Consolidated Pension Plan. Kroger will transfer $449 million in net accrued pension liabilities and prepaid escrow funds, on a pre-tax basis, to fulfill obligations for past service for associates and retirees. On an after-tax basis, $344 million will be needed to execute this transaction. The agreement will be satisfied by cash installment payments to the UFCW Consolidated Pension Plan and are expected to be paid evenly over seven years. The impact of this transaction on GAAP net earnings per diluted share was $0.45 during the quarter and is excluded from adjusted net earnings per diluted share results.
Kroger's net total debt to adjusted EBITDA ratio is 1.79, compared to 1.81 a year ago (Table 5). The company's net total debt to adjusted EBITDA ratio target range is 2.30 to 2.50. Kroger also announced today that the company's Board of Directors has approved a $1 billion share repurchase program; the previous authorization expired last week.
2021 Guidance
Comments from CFO Gary Millerchip
"Based on the momentum within our business, we are raising our full year guidance. We now expect our two-year identical sales stack to be in the range of 10.1% to 11.6%. We expect our adjusted net earnings per diluted share to be in the range of $2.95 to $3.10.
"Our new, $1 billion share buyback program reinforces our Board of Directors and management's confidence in our ability to generate strong free cash flow and is consistent with our commitment to deliver strong and sustainable total shareholder returns of 8-11%."
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.
As previously disclosed, Fred Meyer and QFC and four local unions ratified an agreement for the transfer of liabilities from the Sound Retirement Trust to the UFCW Consolidated Pension Plan. Kroger will transfer $449 million in net accrued pension liabilities and prepaid escrow funds, on a pre-tax basis, to fulfill obligations for past service for associates and retirees. On an after-tax basis, $344 million will be needed to execute this transaction. The agreement will be satisfied by cash installment payments to the UFCW Consolidated Pension Plan and are expected to be paid evenly over seven years. The impact of this transaction on GAAP net earnings per diluted share was $0.45 during the quarter and is excluded from adjusted net earnings per diluted share results.
Kroger's net total debt to adjusted EBITDA ratio is 1.79, compared to 1.81 a year ago (Table 5). The company's net total debt to adjusted EBITDA ratio target range is 2.30 to 2.50. Kroger also announced today that the company's Board of Directors has approved a $1 billion share repurchase program; the previous authorization expired last week.
2021 Guidance
Comments from CFO Gary Millerchip
"Based on the momentum within our business, we are raising our full year guidance. We now expect our two-year identical sales stack to be in the range of 10.1% to 11.6%. We expect our adjusted net earnings per diluted share to be in the range of $2.95 to $3.10.
"Our new, $1 billion share buyback program reinforces our Board of Directors and management's confidence in our ability to generate strong free cash flow and is consistent with our commitment to deliver strong and sustainable total shareholder returns of 8-11%."
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 4.6% 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
- Walmart (WMT): 87%
- Target (TGT): 216%
- Kroger: 4.6%
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 $49.60 a stock (up from our 3rd quarter 2020 earnings report valuation 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 $49.60, a good entry point into the stock of Kroger Company would therefore be at $44.70 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 $49.60, a good entry point into the stock of Kroger Company would therefore be at $44.70 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 2nd quarter 2021 earnings report in late September 2021