What’s Driving Down the Price of Kroger Stock?



Kroger stock plunged 11% in August

Supermarket giant Kroger (KR) stock continued its weak performance and fell around 11.0% in August. While part of the fall was due to ongoing pessimism around food retail, especially after Amazon’s (AMZN) acquisition of Whole Foods Market, the company’s deteriorating comps (comparables) and margins have been another reason for the fall.

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The fall continues in September after 2Q17 results

Kroger stock fell 7.5% after the company posted its 2Q17 results on September 8, 2017. The company posted in-line earnings and a better-than-expected top line, but investors looked beyond the beat.

Management’s decision to withdraw the long-term guidance made investors fear the company’s long-term prospects. Also adding to the worries were the company’s dwindling margins because of the rising price competition.

Kroger is now trading at $21.06 as of September 8, 2017, which is 73.0% below its 52-week high. The company has fallen 39.0% YTD (year-to-date). That compares to a 70.0% rise in Kroger stock between 2014 and 2016.

The Amazon angle

Amazon’s new strategy on prices for Whole Foods will directly impact players such as Kroger, which primarily depends on grocery.

In fact, Whole Foods has already entered into a direct price war with Kroger. According to Reuters, recent price checks at a Los Angeles Whole Foods store suggest that the prices of some of the products in the stores were lower than a nearby Ralphs store owned by Kroger.

Amazon might be willing to steal market share from competitors at the expense of its margin, which it has been doing in the past. However, that would significantly hit grocers that are already struggling to compete on prices, especially from the likes of retail giant Walmart (WMT).

Investors looking for exposure to Kroger through ETFs could choose to invest in the First Trust Consumer Staples AlphaDEX ETF (FXG), which invests 3.2% of its portfolio in the company.

In the next part, we’ll take a look at SuperValu’s (SVU) recent stock performance.


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