Kroger (NYSE: KR) hiked its profit guidance for this fiscal year as the retailer’s focus on essentials paid off amid record-high inflation.

How Did Kroger Perform in Q1?

Rivals including Walmart and Target have recently raised concerns over the impact current inflation is leaving on U.S. consumers, suggesting that the U.S. and global economy could be nearing a recession.

The current headwinds have shifted consumers’ spending focus towards essential products such as groceries, allowing retailers like Costco and Kroger to deal with inflation better than their peers.

The Cincinnati, Ohio-based company hiked its 2022 guidance for earnings per share (EPS) by 10 cents to a range of $3.85 to $3.95, topping the consensus estimates of $3.85. Kroger reported a Q1 EPS of $1.45, beating the analysts’ consensus by 15 cents.

Same-store sales of Kroger’s private-label offerings rose by 6.3% in the first quarter as consumers spent more on affordable store-owned products.

“Customers are aggressively starting to buy our (private-label) brands,” said Kroger CEO Rodney McMullen said, noting that over 90% of customers purchased a store-owned product.

“When the economy is tight, our brands always gain share,” he added.

Total same-store sales excluding fuel rose 4.1% in the quarter, just below the analyst consensus of 4.2%, hurt by weaker-than-expected sales of general goods including apparel and home furnishing products.

The gross margin was down 1% at 21.6% in the quarter and the retailer expects margins to continue facing headwinds in 2022 as rising supply chain costs and discounting hurt its plan to cut $1 billion in costs using automation and technology.

Kroger expects 2022 same-store sales growth to be in the range of 2.5% to 3.5%, while analysts were looking for 3.2%.

“Overall, the results were fine, but for a stock where many are hiding out in this inflationary environment, we do not believe it was strong enough,” Paul Lejuez, an analyst at Citi.

Kroger Wins Carl Icahn Fight

Activist investor Carl Icahn has halted his proxy fight against Kroger over the retailer’s treatment of pregnant pigs, just a few days after he lost a similar fight against fast-food giant McDonald’s. The investors said Monday he is withdrawing his nominees to Kroger’s board, after nominating two directors in March.

Icahn slammed Kroger and McDonald’s over animal cruelty, saying that restraining pigs in crates while pregnant was inhumane. The investor urged McDonald’s to find a different way to source its pork meat, a request which the fast food described as “completely unfeasible.”

McDonald’s shareholders then re-elected all of its board directors last month, winning the battle against Icahn who tried to secure two board seats at the company. The activist investor said he was “disheartened” by McDonald’s “disappointing vote.”

Apart from animal cruelty accusations, Icahn also criticized Kroger for wage disparities, adding that his proxy fights against the retailer and McDonald’s were different given that he typically leads battles against companies that are not performing well financially.

Kroger said it does not directly raise or process any animal and that its board and committee are supervising the company’s animal welfare strategy.

What are Analysts Saying?

Earlier this month, Deutsche Bank raised its price target on KR from $49 to $50 per share in its research note. Guggenheim analyst also hiked their price objective on the retailer’s stock from $49 to $57, giving Kroger a Buy rating.

BNP Paribas also upgraded the stock’s rating from Underperform to Neutral, with a price target of $60 per share.

According to MarketBeat data, Kroger currently has a consensus rating of Hold, with an average price target of $51.28         and a potential upside of 1.9%.


Kroger raised its full-year guidance after the company witnessed aggressive buy of its own brands. Kroger shares are up over 7% YTD, being one of the very few companies that its stock trades in the green this year.