Kroger (KR) Gains Market Share on Operational Strength

·4 min read

The Kroger Co. KR, which operates in the thin-margin grocery industry, has been undergoing a complete makeover not only with respect to products but also in terms of the way consumers prefer shopping grocery. The company has been adding new products as well as eyeing technological expansion to enhance its omnichannel reach.

In a recent update, Kroger and NVIDIA announced a strategic collaboration to build a state-of-art AI lab and demonstration center to expand Kroger’s freshness initiatives, enhance shipping logistics and create a better shopping experience in stores.

Earlier, Kroger had acquired a meal kit company, Home Chef, and partnered with British online grocery delivery firm, Ocado, which reinforced its position in the online ordering, automated fulfillment and home delivery space. The company’s partnership with Nuro, a leading autonomous vehicle company, highlights its commitment to offer fresh food at a great value.

Kroger has been making significant investments to enhance product freshness and quality, and expand digital capabilities. Impressively, the company has been introducing new items under its “Our Brands” portfolio. It launched 239 new items under this banner in the first quarter of fiscal 2022. Identical sales without fuel jumped 4.1%. Fresh Department identical sales increased 5.2%, while Our Brands identical sales rose 6.3% in the quarter.


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We note that Kroger’s digital business remains one of its key growth drivers, thanks to Kroger Delivery Now, the Boost membership program and the rollout of customer fulfillment centers. The company’s ‘Kroger Delivery Now’ service provides customers with food and household staples in 30 minutes.

Additionally, Kroger has been expanding its customer fulfillment centers so as to ensure efficient deliveries. During the first quarter, the company opened two new customer fulfillment centers powered by Ocado's automated Smart Platform, one in Dallas, TX, and another in Pleasant Prairie, WI, bringing the total customer fulfillment centers count to five. It opened three new spoke locations, bringing the total to six.

Wrapping Up

We believe that Kroger’s focus on fresh offerings, technology and process improvements to lower costs, seamless digital ecosystem and margin-rich alternative profit business should continue contributing to growth.

Management envisions identical sales without fuel to be up 2.5-3.5% in fiscal 2022 compared with 0.2% growth registered last year. The company anticipates FIFO operating profit in the band $4.3-$4.4 billion compared with $4.3 billion reported in fiscal 2021. Kroger anticipates fiscal 2022 earnings between $3.85 and $3.95 per share, suggesting an increase from adjusted earnings of $3.68 reported in fiscal 2021.

Shares of this Zacks Rank #1 (Strong Buy) have surged about 28.7% in the past year against the industry’s decline of 9.4%.

3 Stocks You May Bet On

We have highlighted three other top-ranked stocks, namely Dollar Tree DLTR, Sysco Corporation SYY and United Natural Foods UNFI.

Dollar Tree, which operates discount variety retail stores, flaunts a Zacks Rank #1 at present. DLTR has a trailing four-quarter earnings surprise of 13.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Dollar Tree’s current financial-year sales and EPS suggests growth of 6.7% and 40.5%, respectively, from the year-ago reported numbers. DLTR has an expected EPS growth rate of 15.5% for three-five years.

Sysco Corporation, which is engaged in the marketing and distribution of various food and related products, sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 9.1%, on average.

The Zacks Consensus Estimate for Sysco Corporation’s current financial year sales and EPS suggests growth of 32.5% and 124.3%, respectively, from the year-ago period. SYY has an expected EPS growth rate of 11% for three-five years.

United Natural Foods, one of the premier grocery wholesalers delivering the widest variety of fresh, branded, and owned brand products, carries a Zacks Rank #1 at present. UNFI has a trailing four-quarter earnings surprise of 29.9%, on average.

The Zacks Consensus Estimate for United Natural Foods’s current financial-year sales and EPS suggests growth of 7.2% and 3.6%, respectively, from the year-ago reported numbers.

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