supermarket chain operator The Kroger Company (NYSE: KR) The stock is trading 4.5% higher in 2022 and outperforming technology stocks and the benchmark indices. The company operates approximately 2,800 supermarkets and pharmacies under two dozen banners in the 35 states and also sells fuel through more than 1,600 centers. The grocery store is what saved the big chain stores like Target (NYSE:TGT) and Walmart (NYSE: WMT) and especially warehouse giant Costco (NASDAQ: COST). High inflation has curbed consumer goods spending in favor of consumer goods as indicated by Dollar Generals (NYSE:DG) earnings. Although they don’t have many discretionary items, the pure game in consumer goods is Kroger’s. They specialize in the two most essential consumer items, grocery and pharmacy. It’s like owning Target without the clothes and electronics and CVS (NYSE: CVS) without the marked to discount the prices. They also have a thriving private label business, Our Brands, which gives them higher margins and accelerated revenue growth. Kroger’s also owns a lot property. Shares are trading at 11.5X future earnings and sports at 2.17% dividend yield, ideal for where the investors.
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Steady Eddie wins the race
On September 21, 2022, Kroger released its second quarter 2022 results for the quarter ended July 2022. The company reported earnings of $0.90 per share, better than consensus analyst estimates of $0.83 per share with $0.07. Revenues grew 9.3% year-over-year (YoY) to $34.64 billion, better than consensus analyst estimates of $34.44 billion. Identical sales excluding fuel grew by 5.8%. Digital sales grew 8% and Our Brands’ identical sales grew 10.2%. The company increased its dividend for the 16e quarter in addition to buying back $309 million worth of stock in the quarter.
Staples are more than stable
Kroger CEO Rodney McMullen commented, “Kroger delivered strong results in the second quarter, driven by our Leading with Fresh and Accelerating with Digital strategy. We are incredibly grateful for our dedicated employees who continue to deliver a complete, fresh and friendly customer experience. Our consistent performance underscores the resilience and flexibility of our business model, enabling Kroger to thrive in many different business environments.We apply technology and innovation to improve freshness, grow our brands and create a seamless shopping experience so our customers can get what they want, when and how they want it, without compromising on quality, selection and affordability.”
Conservative Guidance
Kroger issued cautious guidelines. The company issued its 2022 taxable profit for 2022 between $3.90 and $4.05, versus $3.96 by consensus analysts. Kroger’s expects full-year identical sales to grow 4% to 4.5%.
Private Label is the growth engine
Kroger’s has evolved its private label brands beyond just cheaper counterfeit products. Customers actually prefer their culinary foods and natural/organic brands over national brand names. Its private label brands saw 10.2% YoY grow at nearly double the overall identical supermarket sales of 5.8%. They sell over 10,000 products under their private label brands, including Simple Truth, Private Selection, BLOOM HAUS, Bakery Fresh Goodness, and Home Chef. They launched another private label brand Smart Way in the quarter. It’s Our Brands’ private label products will not win 12 Editor’s Picks awards for the best new products in 2022.
Attractive pullback levels
Using the gun cards on weekly and daily charts can provide a short-term perspective of the playing field for KR stocks. The weekly gun chart peaked at its profit peak near $52.22 Fibonacci (fib) level. Shares quickly collapsed with the 5-period weekly moving average (MA) at $49.11, 15-period MA at $48.15 and the 50-period MA at $48.38. Rising weekly stochastics begin to stagnate at the 50 band. The stock market decline fell through the weekly market structure layer (MSL) buy trigger for $47.67. The daily gun chart is trying to break down as stocks plummeted through the 200-period daily MA at $49.73, 5-period MA at $48.80 and the 15-period MA at $48.79. Shares fell through the 50-period MA at $47.92 to the daily lower Bollinger Bands (BBs) at $46.15. Attractive pullback levels are $46.69, $45.69 fib, $44.31 fib, $42.93 fib, $40.97 fib, $40.18 fib and the $39.80 fib level.
