Kroger (KR -0.64%) investors could be in for a bumpy trading week ahead. The supermarket giant announces fourth-quarter earnings results on Thursday, March 3, with expectations running high heading into that announcement.
Kroger's stock has outperformed the market and peers like Walmart (WMT 0.73%) on hopes that the retailer can achieve faster sales growth as it emerges from the pandemic. The company is targeting a few promising new profit centers, too, which management believes can lift margins over time.
Image source: Getty Images.
There might be good news for shareholders on these points, and on cash return plans, in just few days. Let's take a close look at what to watch for this quarter.
Market share
One big question heading into the report is whether Kroger is holding its own against Walmart. Retail titan Walmart said in a recent report that market-share gains in the grocery aisles helped it achieve a 6% comparable-store sales boost through the holiday quarter. Expectations are lower for Kroger, given that the company has been growing at about half that rate through most of 2021.
But keep an eye on the chain's two-year growth metric, which should land at about 14% for 2021 compared with Walmart's 15%. Hitting that level would be considered a win for the business, which is attracting more shoppers with in-store brands like Simple Truth. Walmart is Kroger's main competitor in many metro markets, but both companies can grow as they steal share from smaller rivals.
Raising prices
Shoppers have become much more focused on prices recently thanks to soaring inflation. Walmart capitalized on its size to help it keep prices low in Q4, and it also succeeded in buying enough in-demand merchandise to keep inventory flowing.
We'll find out this week whether Kroger achieved similar wins. Look for CEO Rodney McMullen and his team to highlight Kroger's integrated supply chain as a key asset in this tight inventory market.
Margins might continue shrinking slightly, as they did in the previous quarter due to rising costs for products, labor, and transportation. But Kroger is hoping to soon get help on this metric from its growing advertising business.
Looking out to 2022
Heading into the report, most investors are looking for Kroger to issue a conservative 2022 outlook that nevertheless keeps the consumer staples business on a solid growth footing. Revenue gains should hold steady at about flat, according to Wall Street pros, as earnings decline slightly.
Those stagnant results don't begin to capture the profit initiatives management will be pushing this year, including a much larger digital selling footprint. They also don't reflect increasing cash returns that are coming from Kroger's rising dividend and soaring stock buyback spending.
Shareholders are optimistic that these factors will help shares continue outpacing the market as they have through early 2022. But Kroger will first have to demonstrate that it is navigating through the two biggest issues impacting the industry today, inflation and supply chain hiccups. The stock's movement over the short term will likely depend on what Thursday's report reveals about that critical goal.
