After Kroger (KR) Earnings, Should You Buy Grocery Stocks?

Shares of The Kroger Co. (NYSE:KR) gained about 2.3% in morning trading Thursday after the retail grocery giant posted an impressive first quarter earnings report. Despite tough market conditions, Kroger was able to beat earnings expectations and post its 50^th straight quarter of same-store sales growth.

For the first quarter of fiscal 2016, Kroger reported earnings of 70 cents, which beat the Zacks Consensus Estimate by a penny and gained 12.9% year-over-year. The grocery chain saw revenues of $3.4604 billion, which came in just short of our estimated $3.4663 billion, but did grow 4.7% compared to the prior-year quarter.

The company now expects its full year earnings to come in at the mid to low end of its previously announced range of $2.19 per share to $2.28 per share. Excluding fuel, Kroger expects same-store sales to grow by 2.5% to 3.5%.

Kroger’s successful earnings report comes as a surprise for the Zacks Rank #4 (Sell) ranked stock. Based on the company’s latest results, the ranking may move in the coming weeks.

Kroger has been a bastion of growth over the years, even in the face of tough retail conditions like we have seen this year. For investors, this poses a very important question. Is Kroger’s growth consistent with the rest of the industry, or should we stay away from grocery stocks for now?

Big Names, Mixed Signals

Kroger is the second largest grocery retailer behind only Wal-Mart (NYSE:WMT) . The industry leader currently has a Zacks Rank #2 (Buy) ranking and is showing great earnings estimate revision activity over the past month.

In that time frame, we have seen six positive revisions against just one negative revision for Wal-Mart’s current-quarter earnings. Furthermore, we have seen 12 positive revisions against zero negative revisions for the company’s full-year earnings.

On the other hand, one of the more recognizable names in the domestic grocery industry, Whole Foods Market (NASDAQ:WFM) is not seeing very positive estimate activity. In the past 60 days, Whole Foods has seen 11 negative revisions for its current-quarter and full-year earnings. We have not seen any positive revisions for the company recently.

Even still, Wal-Mart’s earnings are only expected to grow by 1.17% this year, which falls behind the pace set by Kroger, and also falls short of Whole Foods’ expected earnings growth of 2.5%.

Industry Outlook

Taking a step back, the supermarket industry is showing some good signs right now. The segment falls into the top 27% of the Zacks Industry Rank, and several large brands hold solid Zacks ranks at the moment. Interestingly enough, many of these top brands are international ones.

For example, Jeronimo Martins (OTC:JRONY) currently has a Zacks Rank #2 (Buy). This retail and wholesale food distributor is based in Portugal and has operations in Poland and Columbia. Another Zacks Rank #2 (Buy) stock right now is Tesco (OTC:TSCDY) . This U.K.-based chain is one of the largest retailers in the world and operates across Europe and Asia.

The Dutch retailer Koninklijke Ahold N.V (OTC:AHONY) , commonly known as just “Ahold,” also has a Zacks Rank #2 (Buy) rank. Ahold is also performing well in our Style Scores system and currently holds an “A” grade in the weighted average VGM category.

Finally, the top ranked company in the industry right now is Delhaize Group (NYSE:DEG) , a Belgium-based company with operations throughout Europe and in the U.S. The company’s Americas division operates the Food Lion and Hannaford brands. Delhaize currently has a Zacks Rank #1 (Strong Buy).

Bottom Line

With a strong position in the Zacks Industry Rank and a number of companies showing solid metrics, the grocery industry looks solid right now. This may come as surprise to some, as uncertainty surrounding global economic conditions has plagued many other retail and consumer sectors.

Nevertheless, Kroger showed us that grocers can still make money in these current market conditions. As always, investors will want to stick to the companies with impressive Zacks metrics and solid earnings data.