Grocery Stocks Soar After Kroger's Solid Earnings Report

Shares of Kroger (NYSE:KR) surged on Thursday after the company reported third-quarter earnings that helped show investors it might be ready to compete against the likes of Amazon (NASDAQ:AMZN) and Walmart (NYSE:WMT) . Kroger’s performance helped lift almost the entire grocery industry, as shares of fellow grocers, including Costco (NASDAQ:COST) , surged.

Kroger posted Q3 earnings of $0.44 per share, which topped the Zacks Consensus Estimate of $0.40 per share. The company’s profit rose from $391 million to $397 million. On top of strong bottom line performance, revenues beat expectations and hit $27.7 billion, which marked a 4.5% year-over-year jump.

The Cincinnati-based grocery chain’s established store sales grew by 1.1%. What’s more, Kroger noted that its digital sales more than doubled from the year-ago period.

The company reiterated its fourth-quarter profit guidance and now projects its identical store sales will climb 1.1%, excluding fuel.

Shares of Kroger soared over 10% premarket and flew as high as 12% in morning trading. Before today’s gains, Kroger stock had plummeted nearly 30% since the start of the year. However, shares of the struggling grocer have started to climb over the last four weeks.

Today’s encouraging third-quarter results came even after Kroger began to lower its prices in an effort to fend off competition from online sellers, as well as Whole Foods and Walmart. Along with lowering prices, which is not necessarily sustainable long-term, Kroger expanded its offerings and broke into new revenue streams.

"We continue to accelerate our digital and e-commerce offerings, to grow Our Brands, to lower prices for customers, and to invest in our associates,” CEO Rodney McMullen said in a statement. "This quarter shows that by investing for the future, our business continues to improve and gain momentum.”

Kroger’s moves include plans to expand its natural food offerings and grow its digital presence, with a focus on increasing online orders. The company also opened a new restaurant concept, as well as a new floral line called Bloom Haus.

Furthermore, the company announced it will launch an apparel line in 2018. These new offerings are aimed to help Kroger compete more directly against the likes of Walmart and Costco, who are viewed as more one-stop shops. Barclays (NYSE:BCS) noted recently that over 80% of Kroger’s locations are within five miles of a Walmart.

Kroger’s strong showing helped the company regain some investor confidence, at least for now. The chain’s positive Q3 and ability to revamp its business model on the fly also lifted stocks throughout the grocery industry.

Grocery Industry

Shares of Costco popped over 3% on Thursday to hit a new 52-week high, helped by its solid November sales. Fellow grocery chains Sprouts Farmers Market (NASDAQ:SFM) and Smart & Final Stores (NYSE:SFS) saw their stock prices gain over 3% as well.

Shares of Weis Markets (NYSE:WMK) and SUPERVALU Inc. (NYSE:SVU) both jumped by more than 1.5%.

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