Kroger Cuts Full Fiscal 2017 Outlook amid Deflationary Headwinds



Kroger cuts full fiscal 2017 outlook

As a result of its second-quarter challenges, Kroger (KR) lowered its full-year guidance. The company now expects its fiscal 2017 sales comps (comparables), excluding fuel, to be 1.4%–1.8% compared to its prior range of 2.5%–3.5%.

The second half of the year is likely to see a greater slowdown compared to the first half. Ongoing deflation is likely to push comps in the 0.5%–1.5% range. This decline marks a significant deceleration when compared to more than 5% in comps growth that the company posted in fiscal 2015 and fiscal 2016.

KR also reduced its earnings projection and is now calling for adjusted earnings of $2.10–$2.20 per diluted share. That compares with its previous forecast of $2.19–$2.28 per share. In addition to deflation, Kroger’s employee pension obligation is another reason for its lower guidance.

The company has warned that deflation could roll over into the next fiscal year, impacting its fiscal 2018 results.

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Grocery sector and deflation woes

Kroger’s lower guidance comes a day after SuperValu (SVU) and two days after Sprouts Farmers Market (SFM) lowered their fiscal guidances. The companies cited persistent deflation as the key catalyst behind the downward revisions.

SuperValu revised its full-year profit guidance and sales comps. The company is now expecting its adjusted EBITDA (earnings before interest tax, depreciation, and amortization) to decline 5% YoY (year-over-year) compared to the 1.5% YoY fall it guided earlier.

Sprouts Farmers Market (SFM) revised its EPS guidance to $0.83–$0.86 compared to the earlier outlook of $0.92–$0.94. It’s now expecting third-quarter comps to be almost flat compared to the 3.5%–4.5% growth guidance provided earlier.

Whole Foods Market (WFM) also highlighted deflationary headwinds to impacts its fourth-quarter earnings when it reported its third-quarter results in late July.

If you’re looking for exposure to Kroger (KR) through ETFs, you can invest in the Guggenheim S&P 500 Equal Weight Consumer Staples ETF (RHS), which invests 2.5% of its total holdings in Kroger.


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