What happened
Week to date, shares of Kroger (KR -0.43%) were trading up 25.7% as of 1:41 p.m. ET on Friday, according to data provided by S&P Global Market Intelligence.
The grocery chain delivered better-than-expected earnings results earlier this week and offered a positive outlook for more growth in 2022.
So what
Management has followed a strategy to invest in growing its fresh departments, while driving higher digital sales, and it's working to draw more customers to its stores.
"Kroger remains the No. 1 retailer in many exciting areas, such as specialty cheese, sushi, and floral," CEO Rodney McMullen said during the earnings call. "As the world's largest florist, we sold over 76 million floral stems for Valentine's Day alone."
The large number of floral sales speaks to Kroger's key competitive advantage, which is its wide customer base. People are typically going to shop at their nearest grocery store instead of driving across town to a competitor, so large chains that make the right investments in services and digital shopping are in a good position to drive long-term shareholder returns.
On that note, Kroger saw pickup and delivery to households increase by 25% over the third quarter, showing that management is pressing the right buttons.
Image source: Getty Images.
Now what
While same-store sales grew 4% year over year excluding fuel, investors were likely more impressed by the outlook. Even comping against strong sales growth through the pandemic, management expects comps to be up between 2% and 3% in 2022.
McMullen said, "We remain confident in our growth model and our ability to deliver total shareholder returns of 8% to 11% over time."
That outlook for compound annual returns around 10% looks too good for a stock that was trading at a relatively inexpensive 13 times forward earnings entering the quarter. Investors sensed a bargain, which largely explains why the stock jumped so much following earnings.
