Friday, March 6, 2020

Kroger Bucks Market Slump and Jumps to Record High

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What’s happening: Shares of Kroger Co climbed to a three-year high on Thursday after the supermarket chain exceeded fourth-quarter expectations, driven by robust demand for its private-label brands.

What happened: Shares of America’s largest supermarket chain spiked more than 8% in regular hours on Thursday, after the company reported its fourth-quarter earnings ahead of expectations.

Kroger’s shares had been under pressure due to strong competition from online grocery shopping. The stock has recently seen momentum due to the coronavirus scare in the US, even though the company announced it will be limiting sales of certain medicines and sanitizing products.

  • Kroger’s net earnings grew 26% to $327 million in the quarter.
  • Adjusted earnings rose to 57 cents per share, from 48 cents in the same quarter a year earlier, beating the consensus estimate of 55 cents per share.
  • The company announced 2.1% growth in quarterly sales to $28.89 billion, ahead of expectations of $28.87 billion.

Why it matters: Kroger added a wide variety of high-margin private-label brands, including plant-based meats and its own range of seltzer waters, at aggressive prices under its strategy to boost demand.

Sales of the Cincinnati, Ohio-based supermarket chain also grew due to its “Restock Kroger” strategy, focused on expanding market share by stocking higher Own Brands products on its shelves and improving existing store layouts. The company’s private label “Our Brands” delivered its best annual performance in 2019, generating more than $23 billion sales. Kroger debuted 758 new Our Brands products last year.

Kroger is working on improving its online delivery services to join competition. In recent years, the company had been facing stiff competition from online retailers like Amazon and Walmart.

Kroger is positioned well, as its supply chains do not have much exposure to China. This allowed the company to maintain its guidance for fiscal 2020. Referring to the coronavirus outbreak, which has claimed 11 lives in the US, Chief Financial Officer Gary Millerchip said, “It's really too early for us to have a sense of how customers' overall behavior will change and what the impact will be.”

Kroger has witnessed increased footfall in recent weeks, amid panic buying of essentials in the US. Competitors like Costco and Target have already reported several products as being out of stock at their stores. Kroger has announced it will be limiting the sale of sanitization and cold- and flu related products to five each per order, in its attempt to “support all customers,” given the recent surge in demand.

How shares performed: Since the spread of the coronavirus in the US, investor sentiment for Kroger has turned positive. The stock has gained more than 18% in the past five days, driven by customers stockpiling amid virus fears. Kroger’s shares jumped 8.1% on Thursday to reach a new 3-year high of 33.47.

What to watch: With customers stocking up on staples amid rising coronavirus cases in the US, Kroger’s sales could continue to grow in the coming weeks. Investors will also look out for news of the company’s efforts to meet the higher demand and maximise benefits, rather than limiting sales.

The Markets Today

     

Investors will be watching European stocks today, with markets continuing to witness a week of high volatility amid coronavirus fears.

Context: European shares closed lower on Thursday after a strong rally following the IMF’s announcement of a $50 billion package for low-income and emerging markets countries to fight the coronavirus. Investor sentiment was also buoyed by US Federal Reserve’s emergency interest rate cut.

Details: European markets plunged, as investors were again gripped by fears of the coronavirus impact on the global economy. Various central banks eased their monetary policies during the week. The US, Australian and Canadian central banks cut interest rates in a bid to trigger the economy amid coronavirus risks. The Bank of England is expected to follow suit soon.

The Stoxx Europe 600 index, which had gained for three consecutive sessions, dropped 1.43% on Thursday, with basic resources and autos leading the decline. The German 30 index fell 1.51%, after rising 1.2% in the previous session. The French 40 index was down 1.9%, with foods & drugs and general financial sectors being the worst performing.

HSBC announced a positive case of COVID-19 on Thursday, while the US confirmed two more cases in New York City. With coronavirus spreading around the world, countries have been forced to take various measures to contain the virus. California has declared a state of emergency after its first virus-related death and Italy has closed schools and some offices until mid-March.

According to the WHO, there were at least 95,200 coronavirus cases globally, with the total death toll at around 3,270.

In corporate news, shares of Hugo Boss gained 3% after the company reported earnings for 2019, increased its dividend and issued a solid 2020 forecast. Norwegian Air Shuttle’s shares fell as the company withdrew its profit outlook for 2020, with the virus outbreak wreaking havoc in the airline industry. Struggling with profitability, airlines have announced asset sales, terminating flights on some routes, delaying aircraft deliveries and trying to change loan terms.

In other news, the OPEC announced plans to reduce oil production by 1.5 million bpd (barrels per day) in the second quarter, pending approval from Russia.

Why it matters: After a dismal performance in Thursday’s session, all eyes are on the basket of economic reports from the European countries scheduled for release today. These include Germany’s factory orders, France’s balance of trade, Spain’s industrial production and Italy’s retail sales. Strong data readings are likely to push the markets higher.

What to watch: Investors are closely monitoring reports from countries around coronavirus numbers. Industrial production in Spain, which rose 0.8% in December, is expected to decline 1.3% in January. Analysts are expecting Italy’s retail sales to drop 1% in January, versus a 0.5% rise in December. Germany's industrial orders are expected to rise 1.4% in January, versus a 2.1% drop in December.

Other Markets: Most European indices closed lower on Thursday, with the FTSE 100, German 30 and French 40 down 1.62%, 1.51% and 1.90%, respectively.

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UK’s house price index, Russia’s total vehicle sales and inflation rate, India’s foreign exchange reserves, Mexico’s car production and gross fixed investment, Brazil’s car production and new vehicle registrations, Canada’s balance of trade, employment change, unemployment rate and business confidence as well as the US non-farm payrolls and balance of trade.