A qualitative perspective of Kroger's earnings result over the past two quarters - 2019/06/20 and 2019/09/12

Published Date: 2019/09/14

We followed Kroger's earnings call for the two recent quarters. Following are tweeted messages showing highlights of EI's Qualitative Analysis on Kroger's earnings call transcripts. EI's Symbolic AI System timely tweets highlights from its analysis regularly and automatically. We revisited these earnings calls to gain a summarize perspective on Kroger's business execution.

Its progressive execution is a clear reflection of its share price over the period of time covered by these earnings calls.

The following are two graphs showing EI's qualitative assessments of Kroger's performance these the two quarters. These graphs showed a distinct progression from the prior quarter to the latest quarter in terms of execution momentum. With the help of Earnings Intelligence (EI), we look deeper into the facts behind this progression.

The following is a heatmap showing the qualitative prospective of Kroger's earnings call on 2019/06/20. The gradient color in the heatmap expresses the composition of the qualitative assessment for each relevant factor discovered by EI, the color legend is same as the graph show above.

From Kroger's June 20th earnings call, EI's analytics showed several encouraging factors:

Using EI's interactive analytics, these factors are illustrated with the following excerpts:

Customer and business management focus

"To that end, it is important that I say right up front that by further intensifying our customer focus, Kroger's quarter-to-date identical sales are trending better than the first quarter and moving toward the guidance range." "We recognize that getting into our identical sales guidance range will require an acceleration of identical sales throughout the rest of our fiscal year." "… an accounting change that affects our financial reporting and reiterate our guidance for 2019." "So as you know, when we talked about our guidance for the year, our expectation was that we would see inflation in the range of 0% to 1%, that is what we built our plan around."

"So we tend to really focus on how we're managing the business to make sure that we're achieving the overall operating profit guidance and EPS that we shared." “… on track to generate the free cash flow and incremental adjusted FIFO operating profit targets for 2019."

Growth and cost control through restock Kroger

"The entire Kroger team brought discipline to controlling costs during the first quarter and delivered on our Restock Kroger savings plan and Alternative profit businesses exceeded budget, setting us up to deliver our incremental operating profit target for 2019." "Kroger's EPS growth will come from adjusted FIFO operating profit growth in 2019, which positions us well to deliver on Restock Kroger."

Reinforce its digital journey with talent

"We are investing in our associates more than ever before and building a purpose-driven culture” "We have recruited some external talent over the last several months to help supplement the internal talent we already had in terms of some of our operating areas, some of our vice presidents, and on our digital team, we've recruited a ton of talent from the outside to accelerate our digital journey." "And we sold YOU Tech, all of which affected operating profit when you look at year-on-year in the first quarter." "So for us, I think it is really about making sure that we're connecting more strongly with the customers and driving sales, but certainly very focused on how do we make sure we're creating the most efficient operating model and we continue to find additional opportunities whether it's in store productivity, pharmacy productivity, as I mentioned earlier."

Purpose driven culture

"We are investing in our associates more than ever before and building a purpose-driven culture, and we are also on track to generate the free cash flow and incremental adjusted FIFO operating profit targets for 2019." "Our Brands contributed both as a sales driver and a profit leader."

Alternative Profit

"We expect incremental operating profit growth to vary throughout the year, reflecting the continued acceleration of our media business and seasonality of certain businesses during peak holiday selling periods."

"We've made several organizational structural changes to allow deeper concentration on Alternative profit stream while also maintaining our laser focus on delivering for our customers in the core business."

"This will be generated primarily from the more mature Alternative profit streams such as Kroger Personal Finance, our media businesses, and customer data insights."

"I think beyond what you already shared, the key components I would add, we are obviously excited about where Alternative profit is heading and still see that as a potential upside."

"We expect Alternative profit streams to continue to grow and contribute an estimated incremental $100 million in net operating profit in 2019 and continue to accelerate into 2020."

"… Alternative profit is always strongest in the fourth quarter because of gift cards and the other related items."

EI's qualitative prospective of Kroger's earnings call on 2019/09/12

From a qualitative prospective, we look into the result of Kroger's execution by analyzing its earnings call transcript on 2019/09/12. The following is a heatmap showing the qualitative assessment of relevant factors discovered by EI. The gradient color in the heatmap expresses the composition of the qualitative assessment for each relevant factor discovered by EI, the color legend is same as the graph show above.

Using EI's interactive analytics, we are able to relate its execution with the following excerpts:

Balancing margin investments

"Some other positive trends during the second quarter include FIFO operating margin that was stable and our supermarket business excluding fuel and pharmacy."

"Gross margin was 21.9% of sales for the second quarter."

"FIFO gross margin, excluding fuel decreased 29 basis points from the same period last year, primarily driven by industry-wide lower gross margin rates in pharmacy and continued growth in our specialty pharmacy business."

"Retail supermarkets, excluding fuel and retail pharmacy saw a 12 basis points of gross margin investment."

"Based on the needs of the business, we are focused on balancing margin investments and capturing cost of goods, sourcing savings and operational efficiencies to offset these investments."

"Our cents per gallon fuel margin in the second quarter was $0.35, compared to $0.26 in the same quarter last year."

Digital Transformation

"Importantly, we are starting to see improving operating profit trends in our digital business."

"And as you alluded to in your comments, we've shared, I think very openly that we embarked on a major transformation for the Company, which involved transforming the experience in the stores and digitally that involve standing up to a number of new businesses around alternative profit streams and taking a dramatic amount of cost out of the business."

Alternative Profit "We will reiterate the ongoing successful results behind our asset like margin rich alternative profit businesses."

"And over time, we expect, as we've shared, as we reclassified alternative profit, that will also become a tailwind that offsets investments and helps gross margin as well."

"We are on track to deliver $100 million in incremental operating profit through alternative profit stream growth."

"We continue to see progress in our alternative profit streams with media and Kroger Personal Finance as the primary growth drivers."

"The alternative profit businesses achieved budget, setting us up to deliver our incremental operating profit target for 2019."

"The alternative profit businesses achieved budget, setting us up to deliver our incremental operating profit target for 2019."

"Retail fuel profit came in above our expectations for the quarter."

"In the fourth quarter, we expect double-digit EPS growth as we lap discrete items from prior year and continue to build strong momentum with our alternative profit streams."

"We will reiterate the ongoing successful results behind our asset like margin rich alternative profit businesses."

"But when you think about food alongside healthcare, the fuel margins that were generating are now alternative profit streams."

Brand

"Starting this fall, 35 Walgreens stores in the area will feature a curated selection of Kroger's popular Our Brands products like Simple Truth, America's largest natural and organic brand, along with national brand products."

"We also introduced 203 new Our Brand items during the second quarter."

"Kroger's Our Brand sales grew 3.1% this quarter, retail and unit share growth led to the highest second quarter share in Our Brands history."

"And we feel we're in a particularly strong position to really understand what's happening there because of our own brand products and the way in which we can have those conversations to make sure that the price increases are legitimate cost increases coming through to us."

"And we continue to even be add more innovation in the lines in terms of the Kroger brand itself private selection and simple truth."

"Our Brands contributed as both a sales driver and a profit leader."

Confirmation of guidance

"I do want to highlight that we do expect to deliver FIFO operating profit growth in 2020 over 2019 confirmed guidance."

"Some things were unanticipated, such as the lower gross profit margins in the pharmacy business that the entire industry is experiencing."

"That said, I want to reiterate that Kroger is committed to FIFO operating profit growth in 2020 over 2019 confirmed guidance."

"Obviously, managing our gross profit margin, we continue to find a lot of cost opportunities, everything from process changes to cost of goods, the goods not for resell."

"On the guidance for 2020, that was the reason that I made the comment that we didn't want to be clear that we expect 2020 operating profit dollars to grow over 2019 provided guidance, just to make sure that people understood that we do expect a growth."

"Is part of the -- I would say pulling or pushing out operating profit dollar growth to perhaps, beyond 2020 is part of that getting back to a more normalized supermarket operating environment and delivery of supermarket operating income growth and can we expect that kind of this quarter and the guidance for the next couple quarters is indicative of what you think a normalized level is."

"But I do think it was important for everybody to understand we do expect 2020 to have operating profit growth over the '19 confirmed commitment."

"So, I think a lot of what we've been learning as we've shared, is that as we get smarter and better in understanding how all those pieces come together and the speed at which they will deliver, the benefits that we're expecting to Restock Kroger, we thought it was important to have to share with you today that we do believe that will deliver growth next year and operating profit over the confirmed guidance for 2019."

This article draws references from Earnings Intelligence, a service provided by SiteFocus