Investors have high hopes for the latest quarterly report from Kroger (NYSE: KR) for 2020. The supermarket chain has experienced explosive growth during the epidemic and has even increased its market share with competitors such as Wal-Mart (NYSE: WMT).
The detailed results show continued good news in these areas, although Kruger warned that sales could decline in 2021 after last year’s surge.
Sales growth reached 11%, or even the growth rate in the previous quarter. This result surpassed Walmart’s 9% increase in US stores during the holiday season, increasing Kroger’s full-year sales by 14%, while Walmart’s growth was 9%.
This finding is in line with the short-term expectations expressed by executives in early December. Management said this also translates into a higher share of grocery spending. “Kruger has continued to expand its market share this quarter,” Chief Executive Rodney McMullen said in a press release.
Kroger charged a one-time fee to support the retirement plan, resulting in operating losses. But without these costs, the retail chain’s financial position is very good. The gross profit margin was 23% of sales and adjusted operating profit increased from $ 2.3 billion in 2019 to nearly $ 4 billion.
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Cash flow has increased dramatically, so even after buying back new shares and new retirement obligations, Kruger still has plenty of resources. Overall, the series debt yield has fallen to 1.75 times, and the target range is 2.3-2.5. This gap means that Kroger has great flexibility and can be actively used for store promotions or other acquisitions in the coming years.
Kruger expects comparable store sales to turn negative in 2020, down 3-5% from a 14% increase last year. Nevertheless, given the devastation caused by the epidemic, it is more instructive to look at the two-year growth period.
This indicator means that the average annual revenue growth between 2020 and 2021 will be between 9% and 11%. “We are accelerating our business momentum,” said Chief Financial Officer Gary Millership, who said the two-year period “can measure this potential momentum more accurately.”
Based on these two years, Kruger believes that total shareholder returns far exceed management’s long-term target of 8% to 11%. While this is good news for investors, the best news is that, after fighting the decline in market share in 2019 and 2018, today’s core consumer goods chains are on a stronger competitive basis.
The biggest challenge for the coming year will be finding ways to increase profits by investing money in stores and by supporting well-known brands like Simple Truth. The large cash inventories and flexible management debt position will easily fund these plans. These assets could also enable the supermarket giant to increase direct cash profits and consider massive acquisitions, such as the $ 2.5 billion acquisition of Harris Teeter in 2013.