Kroger Stock is a Teflon Consumer Staples Play

Grocery chain operator The Kroger Company (NYSE: KR) stock has been faring better than the benchmark indexes during the market sell-off of 2022. The Company is in a key consumer staples segment. The onslaught of winter storms in the new year is causing a run on grocery stores despite the supply chain and logistics problems that are evident with empty produce and meat shelves. Investors’ concerns about the reversion in business during the post-pandemic reopening trend are being convinced that consumer shopping habits have adapted to a new normal. The thought that the upside effects of the pandemic are transitory are being disproven by the continued top and bottom-line growth as demonstrated by its Q3 2021 earnings report. Food inflation has improved margins, but inevitable interest rate hikes could reverse this trend. Prudent investors seeking a consumer staples play in a falling market can watch for shares of Kroger for opportunistic pullback levels.

Q3 Fiscal 2021 Earnings Release

On Dec. 21, 2022, Kroger released its fiscal third-quarter 2022 results for the quarter ending October 2021. The Company reported a profit of $0.78 per share beating consensus analyst estimates for $0.67 per share by $0.11. Revenues rose 7.2% year-over-year (YoY) to $31.86 billion beating consensus analyst estimates for $31.22 billion. Digital sales two-year stack grew 103%. Kroger CEO Rodney McMullen commented, “"Kroger's strategy to lead with fresh and accelerate with digital continues to connect with our customers. Our agility, and the commitment from our amazing associates, is allowing us to navigate current labor and supply chain conditions and provide the freshest food at affordable prices across our store and digital ecosystem. Our focus on execution, combined with our continued discipline in balancing investments in our associates and customers with exceptional cost management, and growth in our alternative profit business allowed us to exceed internal expectations and deliver strong sales and earnings growth. Across all aspects of our business, we are innovating and executing with speed against the key initiatives that are transforming our business. Kroger is in a position of strength. We are committed to delivering for our associates, customers, and communities, and we remain confident in our ability to deliver total shareholder returns of 8% to 11% over time.”

Raised Guidance

The Company raised its fiscal full-year 2022 EPS to range between $3.40 to $3.50 from $3.25 to $3.35 versus $3.35 consensus analyst estimates.

Upside Guidance

In the Q1 2021 earnings release, Kroger provided upside guidance for full-year 2022 with EPS expected between $2.95 to $3.10 compared to $2.83 consensus analyst estimates. To further bolster sentiment, the Company approved a $1 billion share buyback program.

Q1 2021 Conference Call Takeaways

CEO Rodney McMullen set the tone, “Customers are demonstrating more back to normal behaviors, and at the same time are eating more food at home because it's more affordable, convenient, and healthier than other options, plus you can do it as a family. This was evidenced by our Thanksgiving Holiday shopping behavior. Customers engaged in larger celebrations with friends and family compared to last year. We also saw them continuing to cook at home leading up to and during the holiday and select more premium products to elevate the food experience. These are all reasons why we believe the food at home change is structural and not temporary. With most people consuming meals at home, and grocery stores continuing to capture the majority share of stomach, it is more important than ever that we provide customers with flexibility on how they choose to shop with us. We have the right seamless ecosystem in place to meet our customers evolving needs.”

He addressed the supply chain, “Turning now to our supply chain, we feel great about our ability to serve customer needs through the holidays and beyond. This is because our teams have done such a good job planning well ahead to maintain a full fresh and friendly customer experience. In fact, our customers took action to prepare for today's supply chain constraints back in the spring. In a great example of leveraging learning’s from operating during the pandemic, we kept the additional warehouses originally brought on to support business from COVID. To ensure we were able to provide for customers throughout the holiday season as well. Because of our team's agility, we are better in stock today than we were a year ago. And we were able to serve customers through the Thanksgiving Holiday with items they needed for their celebrations. In fact, we increased our year-over-year pickup fill rate by over 130 basis points during the week of Thanksgiving. We chose to incur significant costs in our supply chain during 2021, which has allowed us to provide our customers today and into 2022. We continue to deploy a wide array of tools, including our own owned and operated fleet, and we're working closely with suppliers to mitigate pain points for the customer. We are eager to welcome thousands of new associates to our organization as we began an incredible holiday season. Our hybrid hiring event last month, contributed to the hiring of over 64,000 new associates during the quarter.”

 

KR Opportunistic Pullback Levels

Using the rifle charts on weekly and daily charts can provide a near-term perspective of the playing field for KR stock. The weekly rifle chart uptrend stalled as shares collapsed quickly to the $43.02 Fibonacci (fib) level. This formed a weekly market structure high (MSH) sell trigger under $46.82. The weekly 5-period moving average (MA) went flat at $46.58 and 15-period MA at $43.86. The weekly stochastic abruptly peaked at the 80-band before crossing down. The weekly 50-period MA sits at $40.22. The daily rifle chart formed a downtrend with a falling 5-period MA at $45.21 overlapping its 50-period MA at $40.88. The 15-period MA is falling at $47.21. The daily stochastic made a full oscillation down on mini inverse pups through the 20-band. The daily 200-period MA sits at $41.35 below the daily lower BBs at $42.59. The daily market structure low (MSL) buy triggers above the $43.77 level. Prudent investors can monitor for opportunistic pullback levels at the $43.02 fib, $41.96 fib, $39.83 fib, $39.22 fib, and the $36.90 fib level. Upside trajectories range from the $47.94 fib up towards the $55.36 fib level.