With the stock up 52% in the last year, Kroger (KR +0.62%) has a lot to prove when it posts first-quarter earnings results on Thursday, June 18. Wall Street is expecting a hefty profit increase along with a slight sales gain.
Here's a look at the analyst targets for top- and bottom-line growth compared to the prior year:
| Metric | 2014 Q1 | 2015 Q1 (change) |
| Revenue | $33.0 billion | $33.3 billion (1.1%) |
| Profit | $1.22 per share | $1.09 per share (12%) |
2015 Q1 is the average target of the 20 analysts who cover Kroger stock. Source: Company financial filings and Yahoo! Finance.
Slower sales growth
Kroger's 1% sales improvement might seem tiny given that it boosted revenue by 9% last quarter and by 10% over the full 2014 fiscal year. But there are two big headwinds working against sales growth right now. First, gas prices are down 22% from where they were last year, which will hurt Kroger's fuel numbers. Second, food cost inflation is running at a lower pace, making overall sales growth seem muted. However, the volume of merchandise that Kroger sells, both in fuel and in groceries, is expected to climb significantly.
That's why investors should instead focus on comparable-store sales. Kroger has posted accelerating growth in that category for six straight quarters and is likely to notch its 46th consecutive quarter of positive comps.
Comps excluding fuel sales. Source: Company financial filings
The market share battle
For 10 years straight, Kroger has been chipping market share away from retail competitors, especially from its main rival, Wal-Mart. That trend apparently has continued into its 11th year; Wal-Mart last month booked just 1.1% first-quarter comps.
More recently, Kroger has been using the surging popularity of organic and natural foods to muscle into Whole Foods' territory. It has grown faster than the organic leader for each of the last four quarters. Kroger would need to beat a 3.6% comps gain to extend that streak to five quarters.
Finally, Costco sits at the upper end of the grocery industry. Kroger has yet to beat the warehouse retailer at quarterly comps, and that would be a tall order again this time around. Costco posted a strong 5% first-quarter comps figure last month.
Overall, if Kroger follows recent history it will outpace Wal-Mart and Whole Foods while trailing Costco slightly. That would put it somewhere in the neighborhood of 4% comps.
Outlook update
Investors will likely get an update on Kroger's expectations for the full 2015 sales year. Three months ago, management saw comps growing by 3.5% as earnings improve by 9% to reach $3.85 per share. Those figures are both smack within Kroger's long-term goals and would represent solid achievements for a $110 billion business operating in a cut-throat retaining industry.
However, the strong recent operating momentum suggests that these could turn out to be conservative targets. If so, investors might see Kroger's management boost its 2015 outlook this week.
