Although the rest of the world continues to navigate its way through the novel coronavirus, Kroger (NYSE:KR) is already working on what’s next. And that foresight portends well for KR stock moving forward.
So I was heartened to see that Kroger Chairman and CEO Rodney McMullen is having regular conversations with grocery executives in China, Hong Kong, Italy, Australia, Singapore and Canada. All those places are dealing with the coronavirus pandemic as well, and some of them — such as Italy and China — are on downswing of the curve.
The topic of conversation? What will long-term customer behavior look like after the coronavirus threat fades and things begin returning to normal?
Kr Stock and the ‘New’ Normal
As McMullen describes it, there are three phases of behavior for customers during the coronavirus. First was the hoarding behavior, as people stockpiled items in a rash of panic-buying.
Then, customers settled in. Demand waned slightly, but overall volume at the stores continue to be above normal. That’s the period we’re in now.
The National Retail Federation reports that grocery and beverage store sales roles more than 25% in March, even as overall retail sales recorded its largest monthly recorded drop.
For its part, Kroger reported a 30% increase in same-store sales in March. However, the unknown that McMullen is working on now is what happens next?
Will people continue to stock up on a regular basis for cleaning supplies, paper products and food staples in anticipation of another coronavirus wave? Or a new virus that spreads around the world? Does our collective glimpse of mortality change shopping patterns for good, or is this an aberration for KR stock?
“We are making investments in our associates, stores and supply chains to ensure whatever the third phase brings, Kroger will be best positioned to serve our customers and communities and come out better,” McMullen told Evercore ISI analyst Mike Montani last week in a webcast interview.
KR Stock Is a Hot Wall Street Pick
It’s not often that consumer staples stocks become a Wall Street darling. But as the coronavirus changes things for people, KR stock is suddenly a hot pick by investors and brokers everywhere.
The master of value investing, Warren Buffett, recently snapped up $549 million in KR stock for his Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B). That’s good for a 2.4% stake in the world’s largest grocery store chain.
And I’ve got KR stock as a top pick for growth investors. Kroger gets an “A” rating right now in my Portfolio Grader system because it’s an outstanding growth stock today.
So far this year, KR stock is up nearly 12%. Compared to the Dow Jones Industrial Average, which is down more than 18% year-to-date, this is an absolute trouncing.
In early March, Kroger reported fourth-quarter 2019 revenue of $28.89 billion, which slightly beat analysts’ estimates of $28.83 billion. Earnings were 57 cents per share, also beating estimates of 56 cents.
Moreover, Kroger is upholding its fiscal 2020 guidance. This includes EPS of $2.30 to $2.40, which is significantly better than the $2.19 forecast by analysts. It is also forecasting same-store sales growth of more than 2.25% and incremental alternative profit at $125 million to $150 million. Capital expenditures are projected at $3.2 billion to $3.4 billion.
McMullen talks bullishly about Kroger’s position in the grocery space:
“Customers shop with Kroger in these times of uncertainty because it’s a brand they trust. Our most urgent priority is to provide a safe environment for our associates and our customers with open stores, comprehensive digital solutions and an efficient operating supply chain so that our communities have access to fresh, affordable food and essentials. When we look across the globe, we know supermarkets and other food and drug stores have remained open throughout the pandemic, even in the hardest-hit countries so far, such as China, Italy and Spain.”
The Bottom Line for KR Stock
Kroger is in a great position today. With nearly 2,800 stores in the U.S., Kroger is the leading grocery store in 90% of its markets. It operates in 35 U.S. states under a variety of different names, including City Market, Harris Teeter and Ralphs.
Therefore, while Kroger is deftly handling today’s coronavirus crisis, investors should be heartened that the company is looking ahead to how shopping patterns and customer behavior will be impacted in the long term by the events of 2020.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.