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Category: Stock Market and Kroger Company (KR)
Date: 12 September 2020 Stock Price of Kroger: $34.37 We take a look at the 2nd quarter earnings release of their 2020 fiscal year of Kroger one of the world's largest retail companies with over 2 700 outlets. Kroger (KR) 2nd quarter 2020 revenues came in at $30.489 billion and they reported net income of $819 million for the 2nd quarter of their 2020 fiscal year.
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- Each day I'm inspired by the work our incredible associates do to bring to life our purpose, to Feed the Human Spirit. I am proud of our dedicated associates who are serving our customers when they need us most. Our top priority is to provide a safe environment for associates and customers and as the pandemic continues, we will continue to rise to meet the challenge- Chairman and CEO Rodney McMullen"
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 2nd quarter 2020 earnings report
The data below refers to the latest quarter unless specified otherwise:
- Sales: $30.489 billion (up from $28.168 billion from the same quarter of the previous year)
- Sales increased by 8.2% over the last 12 months
- Net income: $819 million (up from $297 million for the same quarter of the previous year)
- Net profit margin for Kroger: 2.68%
- Diluted earnings per share: $1.03 (up from $0.37 for the same quarter of the previous year)
- PE ratio of Kroger: 7.7
- Dividend declared for the quarter: $0.16 (up from $0.14 for the same quarter of the previous year)
- Dividend yield: 1.8%
- Diluted weighted-average shares outstanding: 786 million (down from 805 million for the same quarter of the previous year)
- Cash and cash equivalents: $372 million
- Cash and cash equivalents per share: $0.47
- Cash and cash equivalents makes up 1.4% of Kroger's market capital
- Cash and cash equivalents makes up 0.78 % of Kroger's total assets
- Accounts receivable: $1.526 billion
- Accounts receivable makes up 3.2% of the Kroger's total assets.
- Inventories: $6.344 billion (up from $6.707 billion for the same quarter of the previous year)
- Inventories makes up 13.3% of Kroger's total assets
- Inventories declined by -2.7% over the last 12 months
- Stockholders equity in Kroger: $9.793 billion
- Stockholders equity per share: $12.45
- The Kroger Company is trading at 2.78 times its stockholders equity per share which is within the expected range of between 2 and 4 times that most firms tend to trade at
- The average price to book value of firms in the S&P500 is 3.7
Kroger's management commentary on their 2nd quarter 2020 earnings
CINCINNATI, Sept. 11, 2020 /PRNewswire/ -- The Kroger Co. (NYSE: KR) today reported its second quarter 2020 results, provided a Restock Kroger progress update on the three-year transformation plan, and shared a COVID-19 response update.
Comments from Chairman and CEO Rodney McMullen
"Each day I'm inspired by the work our incredible associates do to bring to life our purpose, to Feed the Human Spirit. I am proud of our dedicated associates who are serving our customers when they need us most. Our top priority is to provide a safe environment for associates and customers and as the pandemic continues, we will continue to rise to meet the challenge.
Customers are at the center of everything we do and, as a result, we are growing market share. Kroger's strong digital business is a key contributor to this growth, as the investments made to expand our digital ecosystem are resonating with customers. Our results continue to show that Kroger is a trusted brand and our customers choose to shop with us because they value the product quality and freshness, convenience, and digital offerings that we provide.
We delivered extremely strong results in the second quarter and expect to deliver consistently attractive total shareholder returns. We are more certain than ever that the strategic choices and investments made through Restock Kroger to execute against our competitive moats - Fresh, Our Brands, Personalization and Seamless - have positioned Kroger to meet the moment, especially as customers are rediscovering their passion for food at home."
Comments from Chairman and CEO Rodney McMullen
"Each day I'm inspired by the work our incredible associates do to bring to life our purpose, to Feed the Human Spirit. I am proud of our dedicated associates who are serving our customers when they need us most. Our top priority is to provide a safe environment for associates and customers and as the pandemic continues, we will continue to rise to meet the challenge.
Customers are at the center of everything we do and, as a result, we are growing market share. Kroger's strong digital business is a key contributor to this growth, as the investments made to expand our digital ecosystem are resonating with customers. Our results continue to show that Kroger is a trusted brand and our customers choose to shop with us because they value the product quality and freshness, convenience, and digital offerings that we provide.
We delivered extremely strong results in the second quarter and expect to deliver consistently attractive total shareholder returns. We are more certain than ever that the strategic choices and investments made through Restock Kroger to execute against our competitive moats - Fresh, Our Brands, Personalization and Seamless - have positioned Kroger to meet the moment, especially as customers are rediscovering their passion for food at home."
Capital Allocation Strategy
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. The company actively balances the use of its adjusted free cash flow to achieve these goals.
Kroger's net total debt to adjusted EBITDA ratio is 1.70, compared to 2.46 a year ago (Table 5). The company's net total debt to adjusted EBITDA ratio target range is 2.30 to 2.50. Kroger held temporary cash investments of approximately $2.4 billion as of the end of the quarter, reflecting improved operating performance and significant improvement in working capital.
During the quarter, Kroger repurchased $211 million shares under its $1 billion board authorization announced on November 5, 2019. On September 11, 2020, the Board of Directors authorized a $1 billion share repurchase program, replacing the prior authorization. Earlier this year, Kroger increased the dividend by 13 percent, marking the 14th consecutive year of dividend increases.
2020 Guidance
Comments from CFO Gary Millerchip
"As a result of our strong performance in the first half, the expectation of sustained trends in food at home consumption and confidence in our ability to execute against the Restock Kroger strategy, we are updating our full year 2020 guidance.
There are still many uncertainties and, as a result, we are providing a wider guidance range. For the full year 2020, we expect total identical sales without fuel to exceed 13% and we expect to achieve adjusted EPS growth of approximately 45% to 50%. Relative to delivering on our total shareholder return growth targets as outlined at our November 2019 Investor Day, these factors also lead us to believe that our 2021 business results will be higher than we would have expected prior to the COVID-19 pandemic."
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. The company actively balances the use of its adjusted free cash flow to achieve these goals.
Kroger's net total debt to adjusted EBITDA ratio is 1.70, compared to 2.46 a year ago (Table 5). The company's net total debt to adjusted EBITDA ratio target range is 2.30 to 2.50. Kroger held temporary cash investments of approximately $2.4 billion as of the end of the quarter, reflecting improved operating performance and significant improvement in working capital.
During the quarter, Kroger repurchased $211 million shares under its $1 billion board authorization announced on November 5, 2019. On September 11, 2020, the Board of Directors authorized a $1 billion share repurchase program, replacing the prior authorization. Earlier this year, Kroger increased the dividend by 13 percent, marking the 14th consecutive year of dividend increases.
2020 Guidance
Comments from CFO Gary Millerchip
"As a result of our strong performance in the first half, the expectation of sustained trends in food at home consumption and confidence in our ability to execute against the Restock Kroger strategy, we are updating our full year 2020 guidance.
There are still many uncertainties and, as a result, we are providing a wider guidance range. For the full year 2020, we expect total identical sales without fuel to exceed 13% and we expect to achieve adjusted EPS growth of approximately 45% to 50%. Relative to delivering on our total shareholder return growth targets as outlined at our November 2019 Investor Day, these factors also lead us to believe that our 2021 business results will be higher than we would have expected prior to the COVID-19 pandemic."
The Kroger Company (NYSE: KR) stock price history
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. 5 years ago the stock of Kroger was trading at $36.70 and its currently trading at $31.80 That's a loss of -14.1% suffered by Kroger stockholders over the last 5 years.
The stock of Kroger Company is trading at closer to its 52 week high of $36.84 than it is to its 52 week low of $20.70 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 of $36.84 than it is to its 52 week low of $20.70 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): 101.4
- Target (TGT): 87.6%
- Kroger: -6.3%
Recent coverage of The Kroger Company
The extract below touches on the latest news regarding Kroger Company as obtained from Bizjournals.com
Kroger Co.’s sales and earnings trounced analysts’ expectations in the second quarter as shoppers continued to buy more groceries and eat at home more often than before the coronavirus pandemic began,
Read the full article here.
Kroger Co.’s sales and earnings trounced analysts’ expectations in the second quarter as shoppers continued to buy more groceries and eat at home more often than before the coronavirus pandemic began,
Read the full article here.
The Kroger Company (NYSE: 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 $43.60 a stock (up from our 1st 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 $43.60, a good entry point into the stock of Kroger Company would therefore be at $39.20 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 $43.60, a good entry point into the stock of Kroger Company would therefore be at $39.20 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 3rd quarter 2020 earnings report towards in early December 2020