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Rising Competition Tapers Kroger’s Fiscal 1Q18 Margins

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Dec. 4 2020, Updated 10:52 a.m. ET

Kroger reports in-line earnings

Kroger (KR) reported its fiscal 1Q18 results on June 15, 2017, and its EPS (earnings per share) declined 17% YoY (year over year) to $0.58, which was in line with analysts’ expectations. These results represent the third consecutive quarterly earnings decline for the retailer.

Kroger’s margins have been under pressure from rising competition and deflation over the past couple of quarters. While deflation declined in fiscal 1Q18, competitive pressures continue to burden the company’s profitability.

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Competition and margins

Competition is extremely intense right now in the food retail space (XRT). While recent price cuts from Wal-Mart Stores (WMT) have stolen market shares from other retail players including Kroger, the increasing presence of German discounters Aldi and Lidl and growing competition from the online channel pose additional threats. As a result, even established players like Kroger have had to sacrifice margins and make price investments.

This competitive pressure was visible in Kroger’s 1Q18 financials. The company’s gross margin fell 45 basis points to 22.1%. Its operating profit was also lower, as operating costs were on the rise.

Kroger’s strategy

Kroger Chairman and CEO (chief executive officer) Rodney McMullen stated: “We remain focused on our strategy. This will make a difference for our customers and create value for our shareholders. We are running the business with an eye toward where the customer is going. Customers tell us they want to connect with us in multiple ways with the help of friendly associates to easily provide meals to their families at prices that enable them to stretch their budgets. We are committed to providing that experience, and we will not lose on price.”

McMullen added: “We are driving our strategy of lowering costs to reinvest in ways that provide the right value to our customers.

Meanwhile, rising costs and price investments have forced Kroger’s management to lower its guidance for the fiscal year. Read the next part of this series (below) for more.

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