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Why Kroger Shares Popped 12% Higher Tuesday

By Daniel Miller – Nov 5, 2019 at 2:42PM

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Investors gain confidence in management's plan going into 2020 -- are brighter days ahead?

What happened

Shares of The Kroger Co. (KR -0.16%), a leading grocer with roughly 2,759 retail food stores under a slew of brand and banner names, jumped nearly 12% higher Tuesday morning after the company updated guidance and reassured investors of its strategy moving forward.

So what

Investors seem pleased with management's plan to reposition its business and drive shareholder value higher. Kroger held its investor conference Tuesday and also announced the Board of Directors approved a $1 billion share repurchase program, which replaced the prior authorization that had roughly $546 million remaining. Management emphasized that its Restock Kroger strategy -- a plan that focuses on improving cost controls, store remodels, space optimization, and technology enhancement projects -- will drive growth in 2020. Rodney McMullen, Kroger's chairman and CEO, said in a press release:

We are confident that Restock Kroger is the right strategic framework for business growth in 2019 and 2020, and to position Kroger for long-term growth in the future. ... We believe that the food industry is special and big enough for different models to coexist -- and Kroger's model will be one of them because, at Kroger, we are uniquely good at food. Kroger is food first and we believe that no matter who you are, where you're from, how you shop or what you like to eat, everyone deserves to have fresh, affordable and easy-to-enjoy food that tastes amazing. Kroger's ability to be America's food partner is our competitive advantage.

Man checking out with grocery cart

Image source: Getty Images.

Now what

To show confidence in the continued success of its Restock Kroger plan, management announced full-year 2020 earnings-per-share guidance from $2.30 to $2.40, ahead of analysts' estimates of $2.30 per share. Management is also targeting total shareholder return between 8% and 11% annually beyond 2020 driven by 3% to 5% earnings growth, and through share repurchases and dividends thanks to increasing free cash flow. Don't forget, earlier this year Kroger increased its dividend 14%, which marked the 13th consecutive year of dividend increases. While the investor conference is clearly boosting optimism around the stock, and the Restock Kroger plan seems to be making solid gains, keep in mind that the company's stock has been stuck in neutral over the past three years with a 9% decline, and that the grocery store industry is full of massive competitors.

Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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