Kroger 2020 profit, sales estimates top expectations; shares surge

Supermarket chain Kroger Co forecast 2020 profit and comparable sales ahead of Wall Street estimates on Tuesday, saying it expects to see further benefits from investments in store modernization and deliveries, sending its shares up 10%.

In the face of growing competition in the U.S. grocery space, recently disrupted by online retail giant Amazon.com, Cincinnati-based Kroger has taken a series of steps to boost its sales, including slashing prices.

Sales fell 1.2% last year, but analysts expect it to rise 1.1% in 2019.

Under its two-year-old “Restock Kroger” program, the company has been focusing on private-label brand display, rearranging store layouts and expanding home delivery and self checkouts services.

When it announced the program in 2017, Kroger had planned $9 billion (£7 billion) in capital investments over three years and had forecast $400 million in incremental operating profit by 2020.

But the company in September raised doubts about its profit targets, shaking investor confidence in its plan.

Chief Financial Officer Gary Millerchip told analysts on Tuesday that lower pharmacy gross margins, higher wage investments and delayed sales momentum led Kroger to not reconfirm its 2019 operating profit forecast last quarter.

“We are clear-eyed about what worked and what didn’t,” Chief Executive Officer Rodney McMullen said.

The company has set aside $3.2 billion and $3.4 billion in capital investments for next year mainly for driving profitable sales growth in physical and online stores and the rollout of its first Ocado warehouse facility that will go live in 2021.

Kroger last year bought a stake in Ocado, an online grocer, and struck an exclusive deal for the U.S. market.

“When you look at grocery, it really is in a big state of flux... I think Kroger is doing a very aggressive, very smart job,” said Phil Lempert, an expert on retail food trends who advises companies on food branding and consumer behavior.

Kroger also said it would waive pick-up fee for online orders in some stores, as it tries to keep up with competition who offer similar options for consumers to order groceries on their app and collect from stores.

The supermarket chain forecast 2020 adjusted profit between $2.30 and $2.40 per share, and identical sales growth, excluding fuel, to be greater than 2.25%.

Analysts are expecting the company to earn $2.30 per share in 2020 and report same-store sales growth of 1.99%, according to IBES data from Refinitiv.