Retail stock under pressure: Kroger Co (NYSE: KR)

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Kroger Co (NYSE: KR) stock fell 3.05% after the company posted better than expected results for the first quarter of FY 20. The average retail price of fuel was $2.13 in the first quarter compared to $2.62 in the same quarter last year. The cents per gallon fuel margin in the first quarter was $0.48 compared to $0.23 in the same quarter last year. For the remainder of 2020, the company expects fuel profitability to be a headwind compared to prior year as the company cycle margins from 2019 and gallons continue to be affected by COVID-19. Kroger’s alternative profit model is built from a platform of leveraging supermarket traffic and data and is projected to achieve profit growth in 2020. During the first quarter, Kroger Personal Finance seen lower transactions as the customers purchased less gift cards, money services and lottery.

Meanwhile, Fresh continued to be an important driver of sales for Kroger, as demonstrated by the Fresh departments, including meat, seafood and produce, generating strong identical sales in the first quarter. The company’s brands grew 21.1%, due to significant growth across the three largest brands. Kroger began investing in digital several years ago to build a seamless ecosystem that would deliver anything, anytime, anywhere. As a result, the company had over 2,000 pick-up locations and 2,400 delivery locations to reach 97% of the customers.

Moreover, Adjusted FIFO operating profit for the first quarter has increased to $1.45 billion compared to $957 million in the first quarter of 2019. The gross margin was 24.3% of sales for the first quarter. The FIFO gross margin rate, excluding fuel, had expanded 44 basis points due to sales leverage related to shrink, transportation, warehousing and advertising costs.

KR in the first quarter of FY 20 has reported the adjusted earnings per share of $1.22, beating the analysts’ estimates for the adjusted earnings per share of $1.12, according to the Zacks Consensus Estimate. The company had reported the adjusted revenue of $41,549 million in the first quarter of FY 20, beating the analysts’ estimates for revenue of $40,934 million.

The company projects total capital expenditure to be in the range of $3.2 billion and $3.4 billion in 2020. Kroger has not reaffirming or providing new 2020 guidance. The company expects EPS growth in the second quarter to be in the mid-to-high single digit range with tailwinds in the supermarket sales, partially offset by continued investments and fewer headwind

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