Grocery chain operator The Kroger Company (NYSE: KR) stock is trading up 4.5% in 2022 far outperforming tech stocks and the benchmark indices. The Company operates approximately 2,800 grocery store and pharmacies under two dozen banners in the 35 states and also sells fuel through over 1,600 centers. The grocery business is what’s been saving the big box stores like Target (NYSE: TGT) and Walmart (NYSE: WMT) and especially warehouse giant Costco (NASDAQ: COST). High inflation has been curbing consumer discretionary spending in favor of consumer staples as indicated by Dollar General’s (NYSE: DG) earnings. While they don’t have many discretionary items, the pure play in consumer staples is Kroger’s. They specialize in the two most essential consumer items, groceries and pharmacy. It’s like owning Target without the clothing and electronics and CVS (NYSE: CVS) without the marked up to discount down prices. They also have a thriving private label business, Our Brands, which grants them higher margins and accelerating sales growth. Kroger’s also owns a ton of real estate. Its shares are trading at 11.5X forward earnings and sports at 2.17% dividend yield, ideal for value investors.
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Steady Eddie Wins the Race
On Sept. 21, 2022, Kroger released its fiscal second-quarter 2022 results for the quarter ending July 2022. The Company reported a profit of $0.90 per share beating consensus analyst estimates for $0.83 per share by $0.07. Revenues rose 9.3% year-over-year (YoY) to $34.64 billion beating consensus analyst estimates for $34.44 billion. Identical sales excluding fuel grew 5.8%. Digital sales grew 8% and Our Brands identical sales rose 10.2%. The Company raised its dividend for the 16th straight quarter in addition to buying back $309 million in stock in the quarter.
Staples are More Than Stable
Kroger CEO Rodney McMullen commented, “Kroger delivered strong second-quarter results propelled by our Leading with Fresh and Accelerating with Digital strategy. We are incredibly thankful for our dedicated associates who continue to deliver a full, fresh and friendly customer experience. Our consistent performance underscores the resiliency and flexibility of our business model, which enables Kroger to thrive in many different operating environments. We are applying 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, with zero compromise on quality, selection and affordability.”
Conservative Guidance
Kroger’s issued conservative guidance on the safe side. The Company issued its fiscal full-year 2022 EPS to range between $3.90 to $4.05 versus $3.96 consensus analyst estimates. Kroger’s expects full-year identical sales to rise 4% to 4.5%.
Private Label is the Growth Driver
Kroger’s has evolved it’s private label brands beyond being just cheaper knockoffs. Customers are actually preferring their culinary food and natural/organic brands over national brand names. It’s private label brands saw 10.2% YoY growth at nearly double the pace of general identical grocery sales of 5.8%. They sell over 10,000 products under its 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 wont 12 Editor’s Picks awards for Best New Products in 2022.
Attractive Pullback Levels
Using the rifle charts on weekly and daily charts can provide a near-term perspective of the playing field for KR stock. The weekly rifle chart peaked on its earnings spike near the $52.22 Fibonacci (fib) level. Shares collapsed quickly through the weekly 5-period moving average (MA) at $49.11, 15-period MA at $48.15, and the 50-period MA at $48.38. The rising weekly stochastic is starting to stall at the 50-band. The stock plunge fell through the weekly market structure low (MSL) buy trigger at $47.67. The daily rifle chart is attempting a breakdown as shares plummeted through the daily 200-period 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 towards the daily lower Bollinger Bands (BBs) at $46.15. Attractive pullback levels sit at $46.69, $45.69 fib, $44.31 fib, $42.93 fib, $40.97 fib, $40.18 fib, and the $39.80 fib level.
