Kroger Co. (KR, Financial) released its fourth-quarter results before the opening bell on March 4.
The grocery store chain surpassed earnings expectations as the average ticket size increased. In addition, strong digital sales aided the company's overall results for the quarter.
Brief summary of the quarter
The U.S. supermarket chain posted adjusted earnings per share of $0.81, which was ahead of expectations of $0.69. Revenue of $30.74 billion was up from the $28.89 billion reported in the prior-year quarter. Analysts had projected revenue of $30.83 billion.
Comparable store sales, barring fuel, surged 10.7%. Digital sales skyrocketed 118%.
The gross margin came in at 22.9% of sales in the reported quarter. The FIFO gross margin rate decreased 6 basis points, adjusting for fuel sales. The company attributed the decrease to price investments and mix changes, which was partially negated by sales leverage associated with shrink, transportation, warehousing and advertising expenses.
At quarter-end, the company had cash and cash equivalents of $371 million and long-term debt (including obligations under finance leases) of $12.5 billion.
Key insights
Due to the Covid-19 pandemic, Kroger was providing no-contact delivery services, low-contact pickup services as well as ship-to-home orders. In addition, the company decided to forgo pickup fees. The company also waived the minimum purchase requirement and continued growing its contactless payment solutions like Kroger Pay.
Chairman and CEO Rodney McMullen had the following to say:
"Kroger continued to grow market share during the quarter. Our ability to meet our customers' evolving needs is a testament to our deep competitive moats, disciplined investments in our increasingly robust digital capabilities, as well as our associates' relentless focus on our customers. We finished fiscal year 2020 with strong sales and earnings, as heightened demand for fresh, convenient food and meal solutions across modalities, including in store, pick up and home delivery, continued throughout the fourth quarter."
In view of ensuring quick customer service, Kroger made investments to strengthen its omni-channel facility, which integrates the online and physical methods of shopping. Additionally, the company made investments to improve the supply chain and grow its manpower. The company has also been hiring more employees in order to meet the rising customer demand amid the pandemic.
Kroger's transformational plan, known as the "Kroger Restock," which consists of investments in its omnichannel platform, recognizing different lucrative streams with high margins and reduction of expenses, gained traction during the quarter.
Guidance
Kroger has provided guidance for the upcoming fiscal year 2021. Adjusted earnings per share are projected to be around $2.75 to $2.95. Adjusted operating profit is estimated to be between $3.3 billion and $3.5 billion. Capital spending guidance is in the $3.4 billion to $3.6 billion range, while free cash flow is expected to be in the $1.6 billion to $1.8 billion range.
Disclosure: I do not hold any positions in the stocks mentioned.
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