Lately, retailers have largely disclosed significant inflation-related challenges to their bottom line. However, Kroger (NYSE:KR) just saw the opposite, benefitting from consumer behavioral pivots. Now, KR stock is up 6% as of this writing.
The enthusiasm for KR stock centers around the supermarket operator’s second-quarter earnings report. Adjusted for non-recurring items, Kroger produced earnings per share (EPS) of 90 cents. According to FactSet, covering analysts had anticipated the grocer to post EPS of 82 cents.
On the revenue front, Kroger also rang up $34.6 billion. This figure broadly came in line with expectations of $34.5 billion, per Barron’s. Same-store sales, excluding fuel, increased by 5.8% for the quarter as well.
In sharp contrast to the wider retail segment, Kroger even upgraded its full-year guidance. According to the company’s press release, management forecasts adjusted EPS to land between $3.95 and $4.05. Previously, the company had guided for a range between $3.85 and $3.95 per share. In addition, management projects that identical sales without fuel will hit between 4% to 4.5%.
Kroger CFO Gary Millerchip said the following about the results:
“Our second quarter results provide another proof point that Kroger has the right go-to-market strategy. Our consistent execution of this strategy is building momentum in our business which, combined with sustained food at home trends, gives us the confidence to raise our full-year guidance.”
KR Stock: Inflationary Pressures Helped Kroger
Heading into the Q2 disclosure, one of the main concerns among analysts was Kroger’s ability to compete with the broader revenge travel phenomenon. Specifically, people cooped up at home due to the pandemic now enjoy an environment of exponentially fewer restrictions. The temptation to take advantage of these experiences boded poorly for KR stock on paper.
However, in reality, Bloomberg reports that multi-decade highs in inflation actually forced shoppers to “pull back from nonessentials.” Therefore, the company is “benefiting from customers continuing to make meals at home even as Covid-19 restrictions are lifted.” The outlet elaborates:
“The Cincinnati-based grocer has sought to build on those gains by investing in more fresh food and digital offerings, while expanding its store-label products to appeal to increasingly budget-conscious consumers.”
Currently, Wall Street likes what it sees with management’s tactics and strategies, thus lifting KR stock heading into the weekend. Kroger even reported a 10% sales gain for its store-label portfolio. Per Bloomberg, this dynamic indicates that “more shoppers are trading down to stretch their dollars.”
What to Expect Moving Forward
Before investors get too comfortable, Kroger’s Q2 results confirm that monetary dynamics significantly impact consumer behaviors. Again, with inflation rising, shoppers do whatever it takes to stretch their dollars. However, with the Federal Reserve committed to tackling inflation through raising the benchmark interest rate, the economy may soon face deflationary pressures.
So far, Kroger has done well to adapt. Between June and July, the purchasing power of the dollar increased slightly. Nevertheless, investors need to be careful about putting too much of their funds toward KR stock. Kroger will now face a new paradigm, which may bring unexpected results.
On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
