Will Kroger Co (NYSE: KR) Sustain Its Current Rebound?
Kroger Co (NYSE: KR) recently announced its third quarter results, which for the second consecutive quarter reported growing comp sales, and triggered a rebound in its stock price up to the $27 range. The company’s shareholders were pleasantly surprised when the grocery retailer’s CEO Rodney McMullen announced that identical-store sales had increased by 1.1%.
Kroger recently reported excellent Q3 results, which triggered a rally in its stock price.
The company has solid fundamentals, which bodes well for its future.
The company’s current digital strategy is working and will likely drive future growth.
The retailer’s shares rallied higher after the Q3 earnings call, which begs the question whether the 134-year old retailer can sustain its current rebound. Earlier this year, the retailer’s stock price came under intense selling pressure after Amazon.com, Inc. (NASDAQ: AMZN) finalized its acquisition of Whole Foods Market.
The entry of Amazon into the grocery space seemed to spell doom for most grocery retailers given the low prices that Amazon is known for and the negative impact of Amazon on other retail segments. However, it seems that Kroger’s current ‘Restock Kroger’ initiative is working given the excellent sales figures reported in its Q3 results.
Kroger has strong fundamental as evidenced by its growing e-commerce division, which registered 109% growth in the third quarter. The company is also keen on expanding the adoption of its digital sales platform through its website as well as its ClickList mobile ordering and delivery app.
The company is expanding domestically by opening new stores in many of the states where it currently does not have a presence given that it has operations in 35 states. By targeting a broad spectrum of consumers, the company increases the chances of earning more revenues by capitalizing on the shift towards healthy foods by most US consumers.
The company faces stiff competition from other grocery retailers such as Wal-Mart Stores Inc (NYSE: WMT), Target Corporation (NYSE: TGT) and Costco Wholesale Corporation (NASDAQ: COST). Kroger is positioning itself as the premier grocery store for health-conscious Americans by expanding its products offerings, which target all consumers, thereby broadening its total addressable market.
Kroger also intends to sell its convenience store business, which could provide the much needed cash, given the company’s significant debt levels and pension liabilities. Overall, the company seems well positioned to maintain its position as a leading grocery retail chain serving the entire country.
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