Kroger's Restock Strategy, New Product Lines To Aid Top Line

The Kroger Co. (NYSE:KR) is reaping significant benefits from its ‘Restock Kroger’ program. The initiative focuses on redefining customer experience, identifying partners to boost customer value as well as setting right teams and skills to achieve growth in the supermarket business and other profitable units.

In addition, the company is striving to fortify its foothold in the grocery space. Recent launch of vegan meat — Simple Truth Emerge — an expansion of its in-house Simple Truth brand is an appropriate example here. The new product line will offer fresh burger patties and grinds at better prices as well as will be available exclusively at Kroger Family of Stores.

Let’s Discuss

The ‘Restock Kroger’ program, which involves investments in omnichannel platform, is gaining traction. The program identifies margin-rich alternative profit streams, optimizes merchandise and lowers expenses. As part of the program, the company has been making investments in space optimization, store remodeling and technology advancements. These efforts are likely to improve identical supermarket sales.

It is also making incremental investments in associates — wages, training and development, customers as well as infrastructure. Moreover, its order online, pick up in store initiative, home delivery and self-checkout services are noteworthy. Additionally, Kroger’s partnership with Microsoft Corporation (NASDAQ:MSFT) to enhance customers’ shopping experience through data driven technology and other e-commerce initiatives are driving results. Digital sales increased 21%, with continued strength in its pickup and delivery services during the third quarter of fiscal 2019.

Driven by the success of the ‘Restock Kroger’ program and strong financial model, Kroger provided robust profit forecast for fiscal 2020. The company expects fiscal 2020 adjusted earnings per share of $2.30-$2.40. It also anticipates identical store sales growth of more than 2.25%. Further, it estimates generating incremental operating profit growth in the range of $125-$150 billion from alternative profit businesses.

As mentioned, Kroger is enhancing its presence in the grocery space. The company is adding product lines under Our Brands. In fiscal third quarter, Our Brands sales rose 3.4%. Also, the company added 231 new items in this line. Expansion of its Home Chef Express meal kits nationwide, partnerships with British online grocery delivery company Ocado (LON:OCDO) and enhancement of grocery delivery capabilities are boosting grocery concept.

Conclusion

While the aforementioned factors instill confidence, stiff competition from Amazon (NASDAQ:AMZN) , Walmart (NYSE:WMT) and Target (NYSE:TGT) in the grocery segment and industry-wide lower gross margin rates in pharmacy are headwinds. These factors may put pressure on margins and overall profits.

Nevertheless, we believe that Kroger’s well-chalked strategies, including Restock and other expansion efforts are likely to sustain its momentum on bourses.

Apparently, shares of this Zacks Rank #3 (Hold) company have surged 32.5% compared with the industry’s rise of 3.7% in the past six months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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