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Kroger’s Same-Store Sales Face This Headwind

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Kroger’s 2Q17 top-line overview

As we saw in Part 1 of this series, Kroger (KR) reported its 2Q17 (second quarter of 2016) on September 9, 2016. Its top line of $26.6 billion, a rise of 4% year-over-year, missed the consensus by $220 million. The last time KR beat consensus revenue estimates was in 4Q15, or six quarters ago.

A continuing weakness in fuel prices has put constant pressure on Kroger’s top line. Like the previous quarters, the current quarter’s revenue miss was driven by fuel price volatility. Excluding fuel sales, its 2Q17 top-line growth comes at 7.3% YoY (year-over-year).

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Another quarter of positive same-store sales

Kroger’s identical-store sales performance is unparalleled in the food retail industry. With 2Q17, the company recorded 51 consecutive quarters of positive identical supermarket sales growth, excluding fuel. In comparison, Whole Foods Market (WFM), which once boasted industry-leading same-store numbers, has been limping along with negative sales comps (comparables) for the last four quarters.

Sales comps slow down, face deflationary headwinds

Kroger’s identical-store sales, excluding fuel, stood at 1.7% in 2Q17, the slowest growth since 1Q11. The current quarter’s comps were negatively impacted by deflation, which affected most of its product categories. According to company estimates, it faced a deflation of 1.5% in the grocery category this quarter.

Almost all of the food retail industry, including Walmart (WMT), Sprouts Farmers Market (SFM), and SuperValu (SVU), have reported deflationary headwinds in the past couple of quarters. It has not only impacted their sales comps but has also reduced their margins. You can read about the impact of deflation on Kroger’s 2Q17 margins and profitability in the next part of this series.

If you’re looking for exposure to Kroger through ETFs, you can invest in the First Trust Consumer Staples AlphaDEX ETF (FXG). KR makes up 0.75% of FXG.

In the next part, we’ll look at Kroger’s margins and profitability.

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