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Kroger shares slide despite earnings beat

 

Friday, June 16, 2023

Today’s headlines

What’s happening: Shares of The Kroger Company fell on Thursday, after the company released results for its first quarter.

What happened: The supermarket chain topped Wall Street expectations for the first quarter amid steady demand for essentials.

Investors were disappointed, despite Kroger reaffirmed its projections for the full year.

How were the results: The Cincinnati, Ohio-based company reported growth in sales for the first quarter.

  • Sales rose 1.3% year-over-year to $45.16 billion, missing the consensus estimates of $45.24 billion.
  • Adjusted earnings came in at $1.51 per share, topping Wall Street expectations of $1.46 per share.

Why it matters: Shoppers have been pulling back from spending due to high inflation and economic uncertainty, which has impacted Kroger’s results.

Kroger’s comparable sales, excluding fuel, rose 3.5% in the first quarter, slightly ahead of market estimates. Its operating margins narrowed from 3.4% to 3.3%, while operating income contracted by 2.3% to $1.47 billion, with higher promotions exerting pressure on the company’s profits.

As of May 20, 2023, Kroger had $2.6 billion in cash and equivalents and a total debt of $13.4 billion. The company plans to continue paying its quarterly dividend and projects an increase in the same over time, subject to board approval.

Last month, Kroger’s peer Walmart raised its annual guidance as more customers shopped for essential goods. However, Kroger kept its outlook unchanged this time, after raising it for two years.

Kroger reaffirmed its adjusted earnings forecast of $4.45-$4.60 per share for the full year, versus market expectations of $4.50 per share. The company also projected adjusted FIFO operating profit of $5 billion to $5.2 billion for the year.

How shares responded: Kroger’s shares fell 2.7% to close at $45.94 on Thursday, following the release of quarterly results. The stock has lost around 6% over the past month.

What to watch: Investors will watch developments around Kroger’s acquisition of its smaller rival Albertsons in a transaction worth $25 billion. The deal is currently undergoing an antitrust review.

Inflation will also remain one of the major focus areas, as this could significantly impact the company’s overall results ahead.

The markets today

European stocks will be in focus today ahead of a basket of major economic reports

Context: European markets edged lower on Thursday, as investors digested the latest interest-rate decision from the European Central Bank.

Details: The ECB raised its benchmark policy rate further by 25 basis points at its meeting on Thursday, marking the eighth straight rate hike.

The latest hike brings the rate on main refinancing operations to 4%, the highest level since the 2008 crisis, while taking the deposit facility rate to a 22-year high of 3.5%.

The region’s central bank also raised its inflation projections and slightly lowered its growth estimates. ECB President Christine Lagarde stated that the central bank would likely continue increasing interest rates in July, as inflation is expected to remain high.

In the US, the Federal Reserve decided to keep interest rates unchanged at its June policy meeting on Wednesday.

The Eurozone posted a trade deficit of €11.7 billion in April, compared to a year-ago deficit of €34.5 billion.

The pan STOXX Europe 600 Index fell 0.13% to close at 464.33 on Thursday. Construction and materials shares were among the worst performers, while media stocks settled the session higher.

The EUR/USD forex pair rose sharply following the monetary policy decision. The euro added 1.02% to reach 1.0946 against the US dollar.

London’s FTSE 100 gained 0.34% to close at 7,628.26, while Germany’s DAX 40 and France’s CAC 40 lost 0.13% and 0.51%, respectively.

What are expectations: Traders await the release of data on consumer price inflation, labour costs and wage growth from the Eurozone today. The consumer price inflation in the Eurozone is expected to ease to 6.1% in May, from 7.0% in the prior month.

Analysts expect hourly labour costs rising by 3.2% year-over-year in the first quarter, following a 5.7% rise in the fourth quarter. Wages and salaries, which climbed by 5.1% year-over-year in the fourth quarter, is projected to rise by 3.9% in the first quarter.

Other Markets: US trading indices closed higher on Thursday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 1.26%, 1.22% and 1.20%, respectively.

The news shaping the markets

A group of UN experts raised concerns around Russian military forces torturing Ukraine’s civilians and prisoners of war. The news sent the safe-haven US dollar index higher this morning.


The Bank of Japan held its key short-term interest rate unchanged at -0.1% at its recent meeting, exerting pressure on the JPY/USD forex pair.


Singapore’s non-oil domestic exports fell by 14.7% year-over-year in May 2023. The figure coming in much worse than market expectations of an 8.1% decline sent the SGD/USD pair lower in forex trading this morning.


New Zealand’s BusinessNZ Performance of Manufacturing Index fell to 48.9 in May, from 49.1 in the previous month, exerting pressure on the NZD/USD forex pair.


Argentina’s central bank maintained its key Leliq interest rate at 97% at its latest meeting, which sent the ARS/USD pair slightly lower in forex trading this morning.

What else to watch today

Italy’s inflation rate, India’s value of deposits, foreign exchange reserves and value of loans, Brazil’s IBC-Br index of economic activity, Canada’s wholesale sales and foreign investment in securities, as well as US University of Michigan consumer sentiment and Baker Hughes crude oil rigs.


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