Kroger Falls After Missing Revenue In Q3, Online Sales Growth Slows

Shares of Kroger Co KR fell more than 5% Thursday morning after the grocery chain reported a revenue miss in its third quarter and said online sales growth slowed.

Quarter Review: Kroger said it earned 71 cents per share in the third quarter on revenue of $29.72 billion versus estimates of 67 cents per share and revenue of $29.97 billion. Digital sales more than doubled in the quarter but this marks a slowdown from last quarter's 127% growth.

Identical sales excluding fuel were up 10.9% as management noted it is growing market share amid the COVID-19 pandemic. Adjusted FIFO operating profit rose from $653 million last year to $871 million.

Management noted it's seeing continued success in some of its new alternative profit businesses that fall outside its core grocery and retail business, including global money transfer services, and in-store foodservices.

During the quarter, Kroger bought back $304 million of its own stock and this brings its year-to-date buyback activity to $989 million.

Related Link: A Look Into Kroger's Debt

COVID-19 Update: Kroger secured 5,000 truckloads worth of inventory in the quarter and increased its distribution capacity reserves by 20% to minimize any potential supply disruptions.

The company continued to invest in pickup and delivery capabilities. At the end of the quarter, 2,213 stores can offer pickup orders, and 2,468 offer delivery and this covers more than 98% of Kroger households.

Outlook: Management revised its 2020 EPS outlook higher from $3.20-$3.30 to a new range of $3.30-$3.35. The company also expects full year identical sales (without fuel) to be around 14% and help contribute to an EPS growth of 50% to 53%.

Management's guidance is based on ongoing investments in its business and COVID-19 related costs, balanced with continued success in cost savings initiatives and growth in the company's alternative profit businesses.

"Looking toward 2021, we believe that our performance will be stronger than we would have expected prior to the pandemic when viewed as a two-year stacked result for identical sales without fuel growth and as a compounded growth rate over 2020 and 2021 for adjusted earnings per share growth," said Kroger CFO Gary Millerchip.

Photo credit: mcsquishee, Flickr