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Why Kroger Stock Tumbled after Fiscal 4Q18 Results

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Kroger’s guidance

Despite delivering a better-than-expected performance in fiscal 4Q18, Kroger (KR) stock plunged 12.5% on March 8, 2018. Investors seemed to be worried about Kroger’s disappointing guidance and falling gross margin.

Kroger management said it expects EPS (earnings per share) for fiscal 2019 to be $1.95–$2.15, which is much lower than analysts’ average expectation of $2.16.

The company expects its same-store sales to remain strong and increase 1.5%–2% during the year compared to a 0.7% growth achieved in fiscal 2018. 

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Kroger stock still in the red in fiscal 2018

As a result of KR stock falling after the company’s fiscal 4Q18 results, Kroger is now at a YTD (year-to-date) loss of 16.3%. Kroger lost 20% of its value in 2017.

All other major supermarkets and food retailers are also in the red this year. Walmart (WMT) has fallen 11% due to a weaker-than-expected guidance, which resulted in one of the biggest declines in the retailing giant’s stock in mid-February.

Supervalu (SVU) is among the biggest losers so far this year. The food retailer and wholesaler has already fallen 31% YTD.

Analysts’ actions after fiscal 4Q18 results

There were no rating changes after Kroger’s fiscal 4Q18 results. Brokerage firm Bernstein began coverage on Kroger with a “market perform” rating.

Bernstein analyst Brandon Fletcher believes Kroger’s market share will increase faster than the retail food industry. He sees Amazon (AMZN), Walmart (WMT), Kroger (KR), and Aldi growing and putting pressure on smaller grocers.

Kroger, which is covered by 26 Wall Street analysts, is rated 2.3 on a scale of 1 (strong buy) to 5 (sell). Walmart, in comparison, is rated 2.4.

About 42% of analysts covering Kroger, including Jefferies and Pivotal Research, suggest a “buy” for the stock. About 54% of them, including JPMorgan, Stephens & Co., and Morgan Stanley rate Kroger a “hold,” and the remaining 4% recommend a “sell.”

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