Why Analysts Are Expecting Kroger’s Revenue to Fall in Q3

Analysts are expecting Kroger (KR) to post revenue of $27.67 billion, which represents a fall of 0.3% from $27.75 billion in the third quarter of 2017. The sale of its convenience store business to EG Group for $2.15 billion in April is expected to be a drag on the company’s revenue during the quarter. However, some of the declines are expected to be offset by growth in total sales to retail customers and supermarket fuel sales.

To drive sales, Kroger has been focusing on enhancing its digital and home delivery capabilities. In August, the company launched its Ship platform, a new direct-to-customer e-commerce platform, in four markets: Cincinnati, Houston, Louisville, and Nashville. Also, the company plans to expand the service to other markets over the next few months.

In June, the company completed its merger with Home Chef, a meal kit and food delivery company. On October 10, Kroger launched Home Chef’s weekly rotating in-store meal kits at Kroger’s stores in Illinois, Kentucky, Michigan, Ohio, and Wisconsin. The company plans to expand the meal kits to other stores in 2019.

However, the company’s management expects headwinds from its space optimization, store remodeling, and technology enhancement initiatives undertaken in ~1,000 stores.

In comparison, Target (TGT) and Walmart (WMT) posted revenue growth of 6.9% and 1.4%, during the same period, respectively.

For 2018, analysts are expecting Kroger to post revenue of $121.98 billion, which represents a fall of 0.6% from $122.66 billion in 2017. For the same period, the company’s management expects its SSSG (same-store sales growth) to be in the range of 2.0% to 2.5%, excluding fuel. Next, we will look at analysts’ EPS expectations.