Kroger Co (NYSE: KR) stock plummeted nearly 10 percent on Thursday after the company reported another disappointing quarter, and analysts say the competition will continue to weigh on the stock while Kroger reinvests in its business.
Kroger reported second-quarter earnings per share adjusted for one-time items of 41 cents, slightly ahead of consensus analyst expectations of 38 cents. However, second-quarter revenue of $27.87 billion came up just short of analyst estimates of $27.95 billion. Revenue was up 1 percent from a year ago.
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One of the more disappointing numbers for investors was Kroger’s lackluster 1.6 percent same-store sales growth, short of analyst estimates of 1.9 percent growth. Kroger’s same-store sales miss comes in the same quarter that competitor Walmart ( WMT) reported U.S. same-store sales growth of 4.5 percent, its best growth numbers in a decade.
Kroger has been investing heavily in its Restock Kroger initiative in an effort to keep pace with Walmart and Amazon.com ( AMZN). Kroger reported a 50 percent increase in digital sales in the second quarter, but that growth has come at a cost of margin erosion. Second-quarter gross margin was 21.3 percent, down 0.36 from a year ago.
“We are only two quarters into our three-year Restock Kroger plan, and we are making solid progress,” CEO Rodney McMullen says in a statement. “We expect our investments in space optimization during the first half of 2018 to become a tailwind late in the third quarter.”
Looking ahead, Kroger raised its full-year EPS guidance from a previous range of between $3.64 and $3.79 to a new range of between $3.88 and $4.03. Kroger reiterated its previous full-year same-store sales growth guidance of between 2.0 percent and 2.5 percent.
CFRA analyst Joseph Agnese says Kroger appears to be executing its long-term strategy well, but margins will continue to be an issue for the stock.
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“We are pleased by KR’s ability to mitigate pricing pressure with improved operational processes, but still believe margin risks are high as KR aims to price competitively in the future,” Agnese says.
CFRA has a “hold” rating and $31 price target for KR stock.
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Kroger Co (KR) Stock Disappoints With a Poor Earnings Report originally appeared on usnews.com
