Hedgeye CEO Keith McCullough is adding Kroger (KR) to the short side of Investing Ideas. Below is a brief note.
We know why bears buy "defensive" names like grocers and staples (they thing US Growth is slowing). Kroger is a good example of a recipient of the Delta Variant slowing the real Services economy in Q3.
But what happens as covid cases continue to slow and the real Services economy re-opens (for real this time) during #Quad2 in Q4?
Here's a good excerpt from Consumer Staples analyst Daniel Biolsi and Howard Penney's Consumables Pro research product on the name post what was a widely expected "good quarter":
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Management raised EPS guidance from $2.95-3.10 to $3.25-3.35. Guidance for ID sales was raised from -4% to -2.5% to -1.5% to -1.0%, with the 2H expected to be flat to slightly positive. That implies a ~300bps deceleration in the 2H on a two-year stack basis. Management now assumes inflation to be 2-3% in the 2H. As they return to the office has been postponed, and indoor masking rules have been reinstalled in certain areas, food at home has benefited. A long investment in the grocers is also a bet on life not resuming to pre-pandemic behavior. |
Sell on green,
KM