BMO Capital Maintains Outperform Ahead of Kroger (KR) F1Q16 Results

BMO Capital maintains an Outperform rating and $83.00 price target on Kroger (NYSE: KR) ahead of F1Q16 results. Analyst Kelly Bania expects solid results. KR is scheduled to report its results before the market opens on June 18th.

Bania commented, "We expect solid F1Q16 results from Kroger despite a volatile earnings seasonfor the specialty/natural/organic food retailers. We believe our 3.5% ex-fuel ID sales forecast is likely conservative given: 1) despite Kroger’s increasing mix shift toward fresh categories in recent years, we believe the company’s product cost inflation remains more exposed to nonperishable grocery categories, where food inflation has remained much more stable in this current inflationary cyclecompared with past inflationary food cycles (2008 and 2011) – see Exhibits 3and 9 inside; 2) categories where inflation is slowing/deflating (dairy, seafood, and produce) may be “good deflation” given high levels of price elasticities –see our recent F2M Conference Recap note; 3) our IRI data analysis (85%correlation to KR ex-fuel IDs) continues to suggest that F1Q16 IDs could be~5.1% -- see Exhibit 11); 4) we continue to believe that the competitive threat from the industry market share leader remains benign as Walmart’s U.S. grocery comps continue to underperform at “relatively flat” and the company hassignaled that it is deliberately not making progress on price while it focuses oninvesting in other areas; and 5) our analysis of IRI promotional intensitysuggests that the overall environment was roughly flat to LY in F1Q16 – see our June Roundup note. We forecast F1Q16 EPS of $1.19 supported by GM% +103bps YoY (boosted by lower penetration of lower-margin fuel sales),OG&A +77bps YoY, and op margin expansion +19bps YoY."

For an analyst ratings summary and ratings history on Kroger click here. For more ratings news on Kroger click here.

Shares of Kroger closed at $72.35 yesterday.

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