Kroger (KR, Financial) reported its third quarter 2017 earnings results last week, breathing new life to its battered stock. The second largest retail chain in the country reported a sames store sales increase of 1.1%, making it the second consecutive quarter of same store sales growth. The stock is still down by more than 20% since the start of the year, but it has been inching higher from its 52-week low of $19.69, which the price hit in September this year.
The stock price recovery was also helped, in part, by the company beating top-line as well bottom-line estimates for the last two quarters. During the third quarter the company reported earnings per share of 44 cents, beating estimates by 4 cents, and revenue of $27.75 billion, which beat estimates by $290 million. Total sales during the quarter increased 4.5% when including fuel and 3% excluding fuel.
The most important information that came out during the third quarter was that Kroger’s digital sales are accelerating. The company reported online sales growth of 109%, driven by ClickList, the company’s online grocery ordering service.
Kroger has certainly taken a page out of Wal-Mart’s playbook, and the company is expanding its "order online and pick-up at the store" offering at a rapid pace. Walmart already has this service available in more than 1,100 stores and is planning to expand it to 1,000 more stores before the end of next year. Kroger CEO told analysts during the third quarter earnings call that the company will be rolling out its “click and collect” service to over 100 locations by the end of this year.
Kroger has partnered with Shipt, Roadie and Uber to help expand its home delivery service to more than 300 locations. Though the number is still very small considering their store footprint, it's clear that the company is doing everything it can to expand its digital sales and improve its e-commerce logistics chain as well.
The fact that Kroger’s online sales doubled, while overall sales without fuel grew only 3%, is a clear indication that some of the in-store sales have moved to the online front. It’s still good news for the company given the other option would have been to struggle for sales growth longer than necessary.
Kroger confirmed its 2017 guidance. It still expects net earnings per share of $1.74 to $1.79. Kroger said the it expects its fourth quarter identical supermarket sales growth excluding fuel to be more than 1.1%. This will be a huge achievement, considering that No. 1 player Wal-Mart is still increasing its market share at a steady clip, while Amazon keeps gobbling market share at the other end. If Kroger is able to post more than a 1.1% comps growth during the fourth quarter, then the stock price could very well continue its current upward journey.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
