Investors didn't seem to like the third-quarter results for Kroger (NYSE:KR). Shares fell about 5%, following the release of the grocer's latest results before markets opened today.

Both the non-GAAP (adjusted) earnings per share and revenue missed analysts' average forecast for the period. Nevertheless, the company's performance was strong enough for management to maintain its outlook for fiscal 2019. More importantly, its outlook for same-store sales growth in fiscal 2020 implies an acceleration in the key metric.

Despite the Street's bearish response to the report, management seems pleased. Indeed, the company now plans to start repurchasing shares, betting that its investments in its Restock Kroger transformation plan will pay off nicely in fiscal 2020 and beyond.

A man shopping in a grocery store

Image source: Getty Images.

Kroger's third-quarter results

In Q3, comps increased 2.5% when excluding fuel sales. This was a meaningful acceleration from 2.2% growth in Q2. This strong performance in stores that have been open for at least five full quarters helped Kroger's total sales rise 2.7% year over year when excluding fuel and dispositions. Total unadjusted sales were $28 billion, up from $27.8 billion in the year-ago quarter. Adjusted earnings per share were $0.47, down from $0.48 in the year-ago period. The lower EPS reflects the company's investments in its Restock Kroger initiative.

Analysts on average were expecting sales of $28.2 billion and non-GAAP earnings per share of $0.49.

Management was happy with the results.

"Identical sales were the strongest since we started Restock Kroger, and gross margin rate, excluding fuel and pharmacy, improved slightly in the quarter," CEO Rodney McMullen said in the company's third-quarter update. "At the same time, we continued to reduce costs as a percentage of sales."

A buying opportunity?

At the company's investor conference in November, Kroger announced that its board had authorized $1 billion to buy back shares. The repurchase program replaced a previous authorization that had $546 million remaining. 

Given the company's same-store sales momentum, Kroger's robust free cash flow, and a $1.5 billion reduction of debt over the last four quarters, management believes it's time to start repurchasing shares.

"As a result of being within its targeted debt range, Kroger plans to initiate share repurchases in the fourth quarter under its $1 billion board authorization," management said in the third-quarter update. In addition, Kroger forecast $500 million to $1 billion being spent on share repurchases in fiscal 2020.

While the Street may be disappointed, with shares declining 4% year to date, management seems to see the stock's suppressed levels as a buying opportunity.

It's not just Kroger's share repurchase plan that exudes confidence. The company's guidance for fiscal 2020 comps does, too. Management guided for comps to increase at a rate of 2.25% year over year in fiscal 2020. This compares with Kroger's expectations for full-year fiscal 2019 same-store sales to be up 2% to 2.25%. An expected acceleration in fiscal 2020 comps growth versus this year's growth for the key metric suggests management anticipates its Restock Kroger investments will begin delivering incremental value for shareholders.