Kroger’s Revival Hits a Snag as Forecast Disappoints Investors

(Bloomberg) -- Kroger Co. tumbled the most in a year after its holiday-period performance and full-year expectations disappointed investors, showing how tough things are for traditional supermarkets.

  • The company sees full-year profit in a range of $2.15 to $2.25 a share -- below analysts’ average estimate of $2.28. Its fourth-quarter revenue also fell short of estimates, sending the shares down as much as 13 percent Thursday.

Key Insights

  • Kroger is lowering prices, remodeling about 1,000 stores and centralizing its e-commerce operations to boost growth, yet those moves have weighed on sales and profitability. Gross margins contracted nearly a full percentage point in the quarter, hurt by price cuts and supply-chain improvements. Shareholders had hoped that the heavy lifting is now done and that the investments will start to bear fruit in 2019, but the company’s forecast calls this into question.
  • The grocer is also looking for new sources of revenue such as digital advertising, which is more profitable than its core business of selling food. Kroger expects the ad business and other new endeavors to help generate $400 million in additional operating profit by the end of 2020.
  • Competition in the grocery space is always fierce, and could get even tougher for Kroger as reports surfaced last week that Amazon.com Inc. is looking to open more supermarkets beyond its existing Whole Foods Market locations. Still, Amazon’s ability to crack the code on groceries remains unproven, Bloomberg Intelligence analyst Jennifer Bartashus said.
Kroger’s Revival Hits a Snag as Forecast Disappoints Investors

Market Reaction

  • Kroger shares fell as much as 13 percent, the biggest intraday decline in about a year. Before Thursday, the stock had risen 3.4 percent this year, compared with the 11 percent increase for the benchmark S&P 500.

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