Investors had high expectations for Kroger (KR 1.80%) coming into its first-quarter earnings report Thursday morning, and the nation's largest traditional supermarket chain did not disappoint.

Kroger, which owns a number of other brands including Harris Teeter and King Soopers, said comparable sales excluding fuel rose 19% -- an incredible pace for a supermarket chain and evidence of the strong tailwind the coronavirus pandemic provided, as other grocery sellers benefited as well.

For the quarter ended May 23, revenue was up 11.5%, reflecting declining gas purchases, to $41.5 billion, beating estimates of $40.7 billion.

Digital sales jumped 92%. Other retailers saw similar effects as consumers turned to online pickup and delivery options during the crisis to avoid going into stores.

The company showed strong improvements on the cost side of the ledger as well. Gross margin increased from 22.2% from a year ago to 24.3%. Excluding fuel, the FIFO gross margin rate increased by 44 basis points as the company leveraged the sales increase in areas like transportation, warehousing, and advertising. Adjusted operating profit jumped from $957 million to $1.45 billion, and adjusted earnings per share rose from $0.72 to $1.22, easily beating estimates of $1.09.

Management declined to offer guidance given the uncertainty around the pandemic, but said it expected results to be better than its guidance in early April, when it called for $2.30-$2.40 in earnings per share for the year and comparable sales of at least 2.25%.

Despite the strong results, the stock fell on the news, declining by as much as 6.6% during Thursday's session and closing down 3.1%. What gives?

The produce section at a grocery store.

Image source: Kroger.

Is this just a temporary bump?

Investors shrugging off the first-quarter numbers seem to be signaling that they expect Kroger's standout growth to quickly come back down to earth. They are also assuming that the stock, which is up 9.7% year-to-date, already reflects its advantageous positioning as a consumer staple company during the pandemic. With the economy reopening and other businesses coming back to life, Kroger's blockbuster numbers may have just been a one-time performance.  

However, management is still seeing momentum continue into the second quarter, saying that comparable sales were up in the mid-teens nearly a month into the current period. CFO Gary Millerchip noted on the earnings call that shopping habits had changed: some consumers seem to be doing more impulse buying, but many are still stockpiling as they were during the worst of the crisis. He also said the company expected growth to taper as the quarter went on and that it was targeting earnings-per-share growth of just mid- to high-single digits.

That may have spooked some investors, but Kroger also seems to be hampered by familiar concerns -- specifically that it is lagging behind rivals like Walmart in digital initiatives. For example, Walmart's online pickup is free, while Kroger normally charges for the service. 

Kroger may be at a disadvantage against more diversified competitors like Walmart, Costco, and Target, who are considered essential retailers, but sell nonessential items like clothing, home goods, and electronics. That gives those companies an advantage against pure-play retailers who were forced to close stores. Those retailers may even have to shutter locations permanently, giving Walmart, Costco, and Target an opportunity to scoop up market share in those categories.

Ultimately, Kroger will need some strategic initiative beyond Restock Kroger, its three-year plan that focuses around investing in the online channel, to receive some cheers from the market. The stock is actually down over the last five years as Kroger has backed away from its prior growth-by-acquisition strategy. The company has struggled to deliver solid profit growth under the Restock Kroger initiative and has consistently lost market share to Walmart and nimbler competitors like Target, Costco, and Amazon.

Until there's evidence that that pattern has changed, investors are going to assume that any growth spurt is just temporary.