Plunging Margins Add to Kroger Stock Slide

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Plunging Margins Add to Kroger Stock Slide PART 3 OF 6

Rising Competition Hits Kroger’s 2Q18 Margins

Kroger reports in-line 2Q earnings

As discussed, Kroger (KR) reported second quarter results on September 8, 2017. Earnings per share fell 17% YoY (year-over-year) to 39 cents, which was in-line with the consensus expectations. This was the fourth consecutive quarterly earnings decline for the company. Kroger’s margins remained under pressure from the ongoing price war in the retail food sector. Gross margins were down 40 basis points to 21.7% of sales during the quarter.

Rising Competition Hits Kroger’s 2Q18 Margins

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Price cuts hit grocer’s margins

The grocery sector, which already has paper-thin margins and intense competition, is about to see more price wars as Amazon (AMZN) enters the space with the acquisition of Whole Foods Market.

Amazon lowered prices of products like avocados and apples by a third at the end of August soon after closing the deal, which triggered fears that Amazon would disrupt the grocery industry the same way it disrupted book, electronics, and department stores.

Kroger ends the practice of giving long-term guidance

During the second quarter earnings call, the management announced that it would stop providing long-term guidance. “In this dynamic operating environment, we will continue to provide annual guidance as we have done for many years but will no longer provide longer-term guidance,” said Kroger’s chair and CEO, Rodney McMullen.

Kroger’s guidance policy shift is now being taken as a confirmation of the rising uncertainty in the grocery sector. As a result, the company’s stock price plunged after the earnings release despite delivering decent results. Read the next section to know more about the company’s recent stock market performance.

Investors looking to invest in Kroger can choose to invest in the First Trust Nasdaq Retail ETF (FTXD). KR has a weight of approximately 3.1% in the ETF.


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