It’s been less than a month since Amazon.com, Inc. (Nasdaq: AMZN) took control of Whole Foods Market, but Kroger Co ( KR) already appears to be feeling the Amazon squeeze.
On Friday, Kroger reported a 7.8 percent year-over-year decline in profits in the second quarter as increasing grocery competition has pressured margins. Kroger stock initially traded down by 6 percent.
Kroger reported earnings per share of 39 cents, in line with consensus analyst forecasts. Revenue of $27.6 billion topped consensus estimates of $27.5 billion by the narrowest of margins.
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Kroger also reported same-store sales growth of 0.7 percent, topping consensus estimates of 0.4 percent growth.
Despite year-over-year sales growth, pricing pressures drove Kroger’s gross margin down by 0.3 percent.
Amazon cut prices by more than 40 percent on certain grocery products as soon as it took over Whole Foods on Aug. 28. Earlier this week, Loop Capital reported that Amazon appears to be ramping up its Whole Foods price cuts and has now discounted more than 400 items.
The good news for Kroger investors is that management is sticking to its guns on its full-year adjusted EPS guidance in the $2 to $2.05 range.
“As our business continues to improve, we remain committed to delivering on our guidance in 2017 and believe we have the ability to grow identical supermarket sales and market share in 2018,” CEO Rodney McMullen says.
Kroger shares were hammered after the company lowered its full-year EPS guidance in June from a previous range of $2.21 to $2.25.
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Following Friday morning’s sell-off, Kroger stock is now down more than 38 percent in 2017. Last week, Deutsche Bank analyst Shane Higgins said Kroger shares have taken too large of a hit this year and currently offer investors a solid value.
“The Amazon/Whole Foods-related sell-off is largely overdone for Kroger, in our view, given that Whole Foods accounts for just 2 percent of the U.S. grocery market and given the limited overlap in key regions such as the Midwest,” Higgins wrote, according to Benzinga.
Prior to Friday’s earnings report, Deutsche Bank had a “buy” rating and $26 price target for Kroger stock.
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Price War Weighs on Kroger Co (KR) Profits originally appeared on usnews.com
