Kroger (KR): What's In Store For The Stock In Q2 Earnings?

The Kroger Co. (NYSE:KR) is slated to release second-quarter fiscal 2016 results on Sep 9. The lingering question in investors’ minds is, whether the company will be able to continue with its positive earnings surprise streak in the quarter to be reported. In the trailing four quarters, it outperformed the Zacks Consensus Estimate by an average of 6.8%. Let’s see how things are shaping up prior to this announcement.

Zacks Model Shows Unlikely Earnings Beat

Our proven model does not conclusively show that Kroger is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. Kroger has an Earnings ESP of 0.00% as the Most Accurate estimate and the Zacks Consensus Estimate both stand at 45 cents. The company carries a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, the company’s ESP of 0.00% makes surprise prediction difficult.

Factors Influencing this Quarter

A dominant position among the nation’s largest grocery retailers enables Kroger to sustain growth, expand store base and boost market share. The company also remains well poised to deliver higher earnings, primarily through strong identical supermarket sales growth. We believe there remains huge potential to enhance identical supermarket sales, alleviate gross margin pressure and improve operating margin. In our view, Kroger’s long-term earnings per share growth rate target of 8% to 11% seems achievable.

However, cautious consumer spending and higher debt-to-capitalization ratio pose concerns. Moreover, despite registering an increase of 4.7% in first-quarter fiscal 2016, total sales fell short of the Zacks Consensus Estimate for the fifth straight quarter.

Stocks Poised to Beat Earnings Estimates

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

Francesca's Holdings Corporation (NASDAQ:FRAN) has an Earnings ESP of +11.11% and a Zacks Rank #2 (Buy).

Casey's General Stores, Inc. (NASDAQ:CASY) has an Earnings ESP of +3.35% and a Zacks Rank #3.

Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) has an Earnings ESP of +2.27% and a Zacks Rank #3.

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