In recent weeks, some of the country's biggest retailers have revealed improving sales trends, thanks in part to healthy economic growth. The industry expansion is helping most of its players, but the best performers, like Target (NYSE:TGT) and Walmart (NYSE:WMT), are finding ways to cater to customers both in stores and online -- without sacrificing too much in terms of profitability.
Against that backdrop, Kroger (NYSE:KR) will announce second-quarter results on Thursday, and investor reaction will likely depend on just how well the grocer's numbers stack up against its targets and against rival retailers.
Let's take a closer look at the key metrics to watch in this week's report.
Market share updates
Kroger's rebound has been consistent but modest so far. Comparable-store sales have increased in each of the last four quarters following two rare declines starting in late 2016. The chain's first-quarter report kept its expansion pace roughly even with chief rival Walmart as comps rose 1.9% compared to the retailing titan's 2.1% increase.
Kroger's major competitors Walmart and Target have each announced significantly faster comps in recent months, which the retailers have attributed in part to broader economic growth. Target notched its best customer traffic figure in a decade, and Walmart cited booming consumer confidence as a key reason why sales growth shot up to 4.5% in the most recent quarter.
Investors are likely to hear similarly positive comments from Kroger's executive team on Thursday, and the chain should report improving trends for key metrics including customer traffic, sales volumes, and spending per visit. The scale of that sales growth figure will determine whether the retailer continues to win market share, especially as Walmart has poured resources into upgrading its fresh foods and produce departments.
Most major retailers have been happy to trade slightly lower profit margins for a bigger online sales presence. Shoppers want the flexibility to purchase through both the digital and physical channels, so chains are working to deliver what their customers demand. The key question on most investors' minds, though, is just how big an impact this multichannel sales transition will have on the company's earnings power.
Kroger's profits fell last year and are on track for another slight decline in 2018. That's a far cry from the 10% annual earnings growth that the supermarket chain had targeted and frequently exceeded until recently.
Thus, investors will be following gross profit margin for signs of an improving pricing environment on Thursday. Kroger's operating margin trends will also show whether spending pressures from the online sales rollout are stabilizing or continuing to drag earnings lower.
Getting more optimistic
Kroger's latest full-year sales growth target called for sales, excluding fuel, to rise by between 2% and 2.5%, and it's likely that this range will get a significant upgrade on Thursday. Walmart boosted its 2018 forecast to 3% from 2% this quarter, after all, and Target now believes its comps will rise by about 5% to set a multiyear high.
Assuming Kroger follows its peers by lifting its forecast, it likely will cite improving industry trends as providing support for the change. To the extent that its new 2018 outlook deviates from rivals like Walmart, CEO Rodney McMullen and his team will likely point to the success -- or failure -- of growth initiatives, including in-store brands, online ordering and delivery, and price cuts, as driving its market share results.