KR - Embedded Expectations Analysis - 2020 08 21
The Kroger Co. (KR:USA) currently trades above corporate averages relative toUAFRS-based (Uniform) earnings, with a 24.4x Uniform P/E. At these levels, the market has bullish expectations for the firm, but management may be concerned about new customer growth, e-commerce growth, and food away from home recovery
Specifically, management may lack confidence in their ability to sustain sales and new customer growth, generate strong free cash flow, and improve working capital. Additionally, they may have concerns about their ability to effectively adjust in response to the pandemic, supply chain disruptions hampering their promotions, and the recovery of food away from home. Moreover, management may lack confidence in the sustainability of supermarket sales momentum, their ability to generate profits from e-commerce customers, and to capitalize on the digital food retail shift. Also, they may be exaggerating the potential of their technology investments and their ability to be better positioned for growth. Finally, management may lack confidence in their ability to ensure that products stay fresh and secure the liquidity of their meat plants
Kroger operates as a retailer. The company also manufacture and process some of the food for sale in its supermarkets. Supermarkets are operated under one of the following formats: combination food and drug stores (combo stores); multi-department stores; marketplace stores; or price impact warehouses. The combo stores provide food and organic sections, pharmacies, general merchandise, pet centers and perishables such as seafood and organic produce. Marketplace provide grocery, pharmacy and health and beauty care departments as well as perishable offering and general merchandise area that includes apparel, home goods and toys.
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