Kroger (KR +8%) is surging to a five-month high after the company beat third quarter earnings estimates this morning.
Third quarter earnings grew 7% to $0.44/share, which was better than expected. Identical supermarket sales growth excluding fuel was 1.1%, the highest growth since the second quarter of last year.
Management said that traffic was up throughout the quarter and so far in the fourth quarter. Analysts were impressed by the 30 basis point increase in gross margins. Management said the company has become significantly more diligent on negotiating with suppliers to lower the cost of goods sold. A higher sales mix of natural foods also helped to offset the continued investments in price.
Kroger said it will continue to use data to be best on price for consumers and that it wasn't satisfied with 1% comparable store sales growth.
Kroger reaffirmed adjusted EPS guidance of $2.00-2.05 for fiscal 2018 and called for fourth quarter comp growth to improve sequentially (exceed +1.1%).
The company also said it is striving for EPS to be flat to slightly up next year. Management added, "We are not seeing anything that would cause us to be below $1.80... We are confident we have the ability to grow identical supermarket sales and market share in 2018."
Investors are cheering the prospect for a pickup in sales growth next year.
Kroger shares got crushed in June after the company lowered earnings guidance and then Amazon announced the acquisition of Whole Foods. In September, Kroger said it will no longer provide long term-earnings guidance.
Kroger's stock is now up some 35% from the multi-year lows reached a few months ago as the poor sentiment regarding retail stocks has abated.