The Kroger Co. KR has exhibited a decent run on the bourses so far in the year. Shares of this Cincinnati, OH-based company have increased 11.2% so far in the year compared with the industry’s rise of 4.4%. This Zacks Rank #2 (Buy) company has been redefining strategies and upgrading capabilities to stay ahead of the curve. Quality, price, customer shopping experience and reward programs have been its key areas of focus.
Redefining the Grocery Business
Kroger, which operates in the thin-margin grocery industry, has been undergoing a complete makeover with respect to products and how consumers prefer shopping. The company has been adding new products as well as eyeing technological expansion to enhance its omnichannel reach.
Kroger has been making significant investments to enhance product freshness and quality and expand digital capabilities. The company has been introducing new items under its “Our Brands” portfolio. During the final quarter of fiscal 2022, Our Brands’ identical sales rose 10.1%, while digital sales grew 12%, led by 22% growth in Delivery Solutions.
We note that Kroger’s digital business remains one of its key growth drivers due 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 to ensure efficient deliveries.
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In October 2022, Kroger entered into a deal to acquire Albertsons Companies ACI in a bid to strengthen its position in the competitive grocery space. The combined entity is likely to benefit from a loyal customer base and a broader portfolio. The transaction is expected to be closed in early 2024.
We believe that Kroger’s focus on fresh offerings, technology and process improvements to lower costs, a seamless digital ecosystem and the margin-rich alternative profit business should continue contributing to growth. Management believes that Kroger’s Leading with Fresh and Accelerating with Digital initiatives should help generate sustainable total shareholder returns of 8-11% over time.
Management envisions identical sales, without fuel, to be up 1% to 2% in fiscal 2023, with underlying growth of 2.5% to 3.5% after adjusting for the effect of Express Scripts. The company anticipates adjusted FIFO operating profit in the band of $5-$5.2 billion compared with $5.1 billion reported in fiscal 2022. Kroger anticipates fiscal 2023 adjusted earnings between $4.45 and $4.60 per share, suggesting an increase from adjusted earnings of $4.23 reported in fiscal 2022.
Bet Your Bucks on These 2 Hot Stocks
Here we have highlighted two other top-ranked stocks, namely The TJX Companies TJX and General Mills GIS.
TJX Companies, which operates as an off-price apparel and home fashion retailer, carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 10.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for TJX Companies’ current financial-year sales and earnings suggests growth of 6.4% and 14.5% from the year-ago period. TJX has a trailing four-quarter earnings surprise of 4.4%, on average.
General Mills, which manufactures and markets branded consumer foods, currently carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 7.5%.
The Zacks Consensus Estimate for General Mills’ current financial-year sales and earnings suggests growth of 6.3% and 7.4% from the year-ago period. GIS has a trailing four-quarter earnings surprise of 8.1%, on average.
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