Factors Setting The Tone For Kroger's (KR) In Q3 Earnings

The Kroger Co. (NYSE:KR) is slated to release third-quarter fiscal 2018 results on Dec 6. In the trailing four quarters, it outperformed the Zacks Consensus Estimate by an average of roughly 8.4%. In the preceding quarter, the company reported positive earnings surprise of 7.9%. Let’s see how things are shaping up prior to this announcement.

Investors are keeping their fingers crossed and hoping for a positive earnings surprise from Kroger in the quarter to be reported. The Zacks Consensus Estimate for earnings in the quarter under review is 43 cents, reflecting a decline of one cent from the prior-year period.

We observe that the Zacks Consensus Estimate has declined by a penny in the past 30 days. The Zacks Consensus Estimate for revenues is pegged at $27,581 million, down approximately 1% from the year-ago quarter.

Which Factors Hold Key to Kroger’s Performance?

The grocery industry has been undergoing a fundamental change, with technology playing a major role and the focus shifting to online shopping. Kroger has taken the stock of the situation and is in the process of giving itself a complete makeover. The company is expanding store base, introducing new items, digital coupons, and order online, pick up in store initiative. The company’s “Restock Kroger” program is also gaining traction.

In order to bolster its omni-channel capabilities, Kroger acquired meal kit provider, Home Chef. The company also partnered with British online grocery delivery company, Ocado (LON:OCDO) that reinforces its position in the online ordering, automated fulfillment and home delivery space. The company’s deal with Nuro — the maker of driverless road vehicle — to deliver groceries at customers’ door steps using autonomous vehicles is just another game plan to take on rivals. Kroger is expanding its “Scan, Bag, Pay & Go and Self-CheckOut” program.

We believe that the company’s operational strategies present enormous opportunities to augment identical supermarket sales and enhance return on invested capital. The Zacks Consensus Estimate for identical supermarket sales, excluding fuel center sales, showcases an increase of 1.8%. Supermarket sales, without fuel, are likely to increase 6.8% to $23,094 million during the quarter under review.

Stiff competition and an aggressive promotional environment are the primary headwinds plaguing Kroger. Industry experts cited that the sector is jostling with volatile commodity prices, higher freight costs and increasing wages. Moreover, analysts believe that incremental investments may keep margins under pressure.

What the Zacks Model Unveils?

Our proven model shows that Kroger is likely to beat estimates this quarter. A stock needs to have both a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Kroger has a Zacks Rank #3 and an Earnings ESP of +0.58%. This makes us reasonably confident of an earnings beat.

Other Stocks Poised to Beat Earnings Estimates

Here are some other companies you may want to consider as our model shows that these too have the right combination of elements to post earnings beat.

Burlington Stores, Inc. (NYSE:BURL) has an Earnings ESP of +2.95% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

RH (NYSE:RH) has an Earnings ESP of +1.78% and a Zacks Rank #2.

The Michaels Companies, Inc. (NASDAQ:MIK) has an Earnings ESP of +2.86% and a Zacks Rank #3.

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