Kroger guides to 2021 puts and takes (KR)
Kroger reported Q4 adj. EPS of $.81 vs. consensus of $.69. The upside was driven by slightly better sales, gross margins, and interest expense. ID sales ex. fuel was +10.6%, 40bps above consensus expectations, and 30bps lower than Q3. Grocery, produce, and meat were the strongest categories. Digital contributed 5.5% to ID sales. Management said digital pass-through profitability improved by 20%. Mid to high teens vs. MSD% range.
Gross margins 6bps with sourcing benefits and alternative profit streams offset by continued investments in price. The LIFO credit was $84M. Fuel was a $50M headwind. OG&A expenses as a percentage of sales decreased 7bps. The adjusted FIFO operating margins contracted 7bps YOY to 2.7%.
Headwinds and tailwinds for 2021:
- Alternative profit streams had $150M of incremental operating profit in 2020.
- Pharmacy is expected to be a tailwind in 2021 as it compares against lower prescriptions during COVID-19.
- Fuel will be a headwind.
- The company has several major union contracts renewing in 2021, and hourly wages are expected to continue to increase.
- Kroger used the strong results of 2020 to reduce net debt by $2B.
- Ocado's initial investments are expected to be above $100M in 2021.
- Digital profitability is expected to be less of a headwind in 2021.
For F22, Management guided EPS to $2.75-2.92 vs. consensus of $2.69. Management expects ID sales to decline 3% to 5%. Management expects the two-year stack ID sales to increase 9-11%. Management is planning on inflation to be 1-2% for the year. Gross margins are expected to contract due to mix and sales deleverage. QTD sales growth is just slightly below Q4 as it begins to lap the outbreak. The company will hold its analyst day on March 31st. Kroger is a best idea short as it faces difficult sales comparisons and gross margins are contracting during the best sales environment.
Publix out comps public peers (ACI)
Publix Super Markets reported SSS growth of 13.4% in Q4 and 16% for the year. Management estimated the impact of the pandemic lifted sales by a little more than half of 8.7%. The quarter's gross margins expanded 15bps in Q4 and 70bps for the year, driven by reduced shrink and sales leverage. EPS grew 42% to $1.32 in Q4. Even though it is a privately held company, the company reported its share price rose to $60.20 from $57.95 on Nov. 1. The company opened 39 supermarkets, closed 14, and remodeled 154 stores in 2020. The company had 1,264 stores at year-end. It currently has 31 stores under construction, 20 of which are located in Florida. Between Southeastern Grocers and Publix, the Southeast is out-competing other regions and seeing more new grocery store growth.
Gotham Greens to open a 10-acre greenhouse (APPH)
Gotham Greens announced its latest greenhouse would be constructed near the campus of the University of California-Davis. The first phase of the 10-acre facility will open later this year. Gotham Greens will deliver its hydroponic greenhouse-grown salad greens to retailers and foodservice operators on the West Coast. Gotham Greens recently raised $87M in new equity and debt capital, bringing its total financing to $130M. The company operates greenhouses in New York, Illinois, Rhode Island, Maryland, and Colorado.
AppHarvest currently operates a 60-acre facility in Kentucky where it claims to save on shipping by being centrally located. Nearly every other greenhouse operator is more locally based, saving even more on transportation costs than AppHarvest. We presented our SPAC Research Roundup on AppHarvest earlier this week. Yesterday, AppHarvest filed an amended S-1 to register 37.5M shares from the PIPE financing, which likely contributed to the share price's weakness.
