Why Does Warren Buffett Keep Buying Kroger Stock?

We recently heard about Warren Buffett and his team at Berkshire Hathaway (NYSE: BRKA) (NYSE: BRKB) in Q4 2020, retailer Kruger (NYSE: KR). In a Fool Live video recorded Feb. 22, Fool.com contributor Matt Frankel, CFP and Industry Focus presenter Jason Moser discusses why Buffett loved Roger and the grocery industry so much.

Why Does Warren Buffett Keep Buying Kroger Stock

Matt Frankel: You mentioned Kruger, and he has been with Kruger for quite some time. Remember that the supermarket has been losing popularity for a while. Everyone thought Amazon (NASDAQ: AMZN) would take the job.

Jason Moser: Yes, I remember Amazon buying Whole Foods. At that point, we saw all the store owners on the day the deal was announced, and stocks at all the grocery stores had fallen. I do not know. This seems to be an unusual response as people have forgotten the opportunity and how great it was to run errands. I think Walmart (NYSE: WMT) is technically the largest supermarket in the country. Kruger, right behind them. Kroger, like other brands, clearly owns Harris Teeter. This is a really good opportunity. Groceries, people should eat. Again, this may not be the hottest act in the world, but it’s perfectly stable.

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Frankel: Yeah, during the pandemic, supermarkets got pretty good across all channels. I think Buffett looked into this other thing. Everyone thinks this is Amazon’s secret to buying Whole Foods. This will be a grocery store where you can stand on the sidewalk or a grocery store. But now I can get delivery from Publix if needed and if needed I can get delivery from Kroger. There is a retail chain called Lowe’s Foods in the Southeast which is great. They make roadside trucks very efficient and easy. Supermarkets have already adopted Amazon’s main advantage in a number of ways. If I can drive and someone puts food in my box, what’s the difference between ordering it and having it delivered on Amazon the next day? This is almost more convenient.

Moser: You study various processes that are already being implemented at a national level. I immediately thought of Target Stock (NYSE: TGT). In this regard, he has done very well.

Frankel: Yes. When Buffett joined, Kruger was extremely disappointed. I really don’t blame them. I think this is a very worthwhile investment.

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The CEO of Kroger said that food inflation is expected to reach normal levels in 2021, but that prices may fluctuate

Kroger CEO Rodney McMullen told CNBC on Thursday that he does not expect food inflation to be an issue in 2021, and has warned that monthly prices could fluctuate.

Kroger CEO says he expects normal levels of food inflation in 2021

“We expect annual inflation to be between 1% and 2%, which is a fairly normal figure,” McMullen said in “The Closed Bell.”

The outlook of supermarket executives is in line with household food price forecasts published by the U.S. Bureau of Labor Statistics Consumer Price Index. When inflation in the broader US economy came to the fore, McMullan made this comment.

Wall Street has been closely monitoring the yield on the 10-year US 10-year Treasury bond, which hovered around 1.547% Thursday, for several weeks. January yields were sometimes less than 1%, but the expected robust economic recovery from the coronavirus pandemic, coupled with a possible recovery from inflationary pressures, has improved yields.

Fed Chairman Jerome Powell said on Thursday that he expects “prices will be under some upward pressure,” but said this kind of period is not long enough for the central bank to hike interest rates. As the pandemic intensified, the Fed lowered its target range for short-term funding rates to nearly zero in March last year.

“We expect that as the economy reopens and is expected to recover, we will see higher inflation from the fundamentals,” Powell said at the Wall Street Journal jobs conference on Thursday.

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Regarding supermarket prices, McMullen said there could be changes, especially compared to the 2020 level at the start of the pandemic.

“If you look at the second quarter of last year, inflation for our meat is very high,” said McCullen. This happened after the health crisis led to the closure of the meat packaging plant.

“We expect deflation to be very strong this year, so overall we’re still at the estimated 1% to 2% level, but this step is going to be very bumpy,” MacMurlan said.

Kroger shares closed 2.5% at $ 34.09 a share on Thursday. The company earlier in the day reported fourth-quarter earnings, which exceeded analyst expectations, with earnings per share of $ 0.81. Quarterly sales were $ 30.74 billion, lower than Wall Street’s forecast of $ 30.86 billion.

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Activist investor group says Kohl’s earnings show ‘best of worst’ in retail, urges change

A group of activists attempting to take over Kohl’s board of directors delivered a speech on Friday saying the retailer’s recent quarterly financial performance was poor, indicating the need for a revised strategy.

Activist investor group says Kohl’s earnings show ‘best of worst’ in retail, urges change

“The board of directors appears to be satisfied with the worst-performing company in the retail sector,” the organization said in a letter to Kohl’s shareholders. meet the performance. Shareholder Needs. ”

He added, “Kohl’s has a very good location outside of the mall which has a distinct advantage, but that also means Kohl’s is outside of the mall to compete with successful players such as TJX, Ross Stores, Target, Old Navy and Burlington . ”

The investor group – Macellum Advisors, Ancora Holdings, Legion Partners Asset Management and 4010 Capital – owns a 9.5% stake in Kohl.

In late February, Kohl’s rejected her attempt to take control of her board of directors as it would undermine her drive to restructure her company.

When Kohl’s announced its fourth-quarter earnings earlier this week, it exceeded Wall Street expectations and hinted that its initiatives to drive revenue growth (such as the one it is expected to partner with cosmetics retailers) will be stronger in 2021 and share repurchases.

In addition, he gave some new details to ease the frustration of the activists, including the fact that Kohl’s added 2 million new customers in 2020 through Amazon’s returns service.

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Activists said Friday they were still skeptical about whether the Cool Amazon program would boost profits.

A Kohl’s spokeswoman told CNBC in an emailed statement that activists compared financial performance for 2019 to expectations for 2021, “given the ongoing global pandemic, this is absurd.”

“Comments from activists and data they follow show that they are focused on short-term recovery, but at the expense of sustainable success,” he said. He added, “We reject the activists’ short term and reject their attempts to disrupt our efforts on this critical issue.” Moment. momentum. We remain open and interested in new ideas that can help us increase the value of the company and shareholders. ”

On Friday afternoon, Kohl’s stock fell nearly 2%. In the past 12 months, the stock has risen nearly 50%. Kohl’s has a market cap of $ 8.64 billion, which is higher than the market value of Nordstrom and Macy’s.

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Kroger (KR) Reports Mixed Financial Results for Q4

Kroger’s history dates back to 1883, when Barney Kroger opened a grocery store in Cincinnati, Ohio. Over the years, the company has worked hard to provide customers with quality products. Kroger’s quality and consistent service have helped it become the leading supermarket in the United States. Today it operates thousands of supermarkets, pharmacies, jewelry stores and many food production facilities.

Kroger (KR) Reports Mixed Financial Results for Q4 1

After the company reported better-than-expected adjusted earnings for the fourth quarter, the stock rose more than 2% on Thursday. The supermarket giant announced a loss of 10 cents per share for the three months ended January 30, while the company lost 40 cents per share in the same period in 2019. After the adjustment, Kroger’s earnings per share were 81 cents. Expect consensus. 69 cents per share.

Sales were up 10.7% year-over-year to $ 30.74 billion, but slightly lower than analysts estimate of $ 30.83 billion. On the other hand, digital sales for the quarter are up 118% year on year. The same store sales were up 10.6%, above market expectations for an increase of 9.4%.

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Speaking of performance, CEO Rodney McMullen said, “Kroger continued to grow its market share during the quarter. Our ability to meet the evolving needs of our customers is testament to our strong competitive advantages, aggressive investment in our increasingly robust digital capabilities, and continued interest of our employees in customers By the quarter Fourth, at the end of fiscal 2020, we delivered new sales growth and strong sales, as we are listed on the stock exchange and there is a growing demand for fresh and convenient food and meal solutions on all ways, including delivery and home delivery.

Looking ahead, Kroger expects adjusted earnings per share for fiscal year 2021 to be between $ 2.75 and $ 2.95, higher than the analyst average estimate of $ 2.69.

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Kroger CEO Talks 2021 Outlook: Consumers Are Loving Family Dinner Time

Kroger Co, NYSE: KR, announced its fourth-quarter results on Thursday morning, and management is confident enough to believe the latest trend will continue into 2021 and make the outlook bullish.

Trust Guidelines: Kroger forecasts same-store sales to grow 9.1% to 11.1% every two years by 2021, while earnings per share are projected to grow 12% to 16% every two years.

Kroger CEO Talks 2021 Outlook Consumers Are Loving Family Dinner Time 1

Management believes the latest trends in families could continue into 2021 and beyond, and has found that nearly 60% of Kroger’s customers refer to their most important activity day as family dinners, McMullen said. Kroger customers have come to appreciate its products and have expressed their willingness to spend more on advanced products.

Kroger CEO Talks 2021 Outlook Consumers Are Loving Family Dinner Time 2

Inflation expectations: Kroger predicts that food inflation will remain within the “perfectly normal” range of 1% to 2% by 2021. Despite the rise in meat prices in the second quarter of last year, however, the development trajectory remains “very bumpy”.

Resolve the store closure dispute: In February, City Council ordered a $ 4 wage increase for groceries, Kroger closed several West Coast stores and made headlines.

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The CEO said that even before the pandemic and the supermarket sector operating with “very meager” profit margins, closed stores were still “struggling”.

At the same time, he said the median hourly wage for Kroger workers was over $ 15.50 an hour, while pensions and other benefits increased by another $ 5 an hour.

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