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Kroger Stock Sinks on Weak Q4 Results and Dismal Forecast

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Fourth-quarter performance

Kroger (KR) stock plummeted 8.8% as of 11:31 AM ET today as the company fell short of analysts’ expectations for its Q4 of fiscal 2018—which ended on February 2, 2019—and fiscal 2019 earnings outlook.

Kroger’s sales decreased 9.5% to $28.1 billion in the fourth quarter, missing analysts’ forecast of $28.4 billion. The company’s sales grew 1.6%, excluding fuel, the impact of an additional week in Q4 of fiscal 2017, the divestiture of the convenience store business unit, and the impact of the Home Chef merger. Kroger’s same-store sales, excluding fuel, grew 1.9%.

Kroger’s fourth-quarter adjusted EPS of $0.48 also missed analysts’ estimate of $0.52. The company’s adjusted EPS declined 23.8% year-over-year due to the impact of an additional week in the previous fiscal year and growth investments.

Kroger has been investing significantly in technology and growth initiatives to improve its position in the highly competitive grocery market. But these investments and lower pricing are pressuring the company’s profitability.

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Kroger’s fiscal 2018 net sales declined 1.2% to $121.2 billion in fiscal 2018. Its same-store sales, excluding fuel, grew 1.8% in fiscal 2018. The company’s adjusted EPS, excluding one-time items but taking into account the additional week in fiscal 2017, declined to $2.11 in fiscal 2018, compared to $2.04 in fiscal 2017.

Through the Restock Kroger program, the company has been undertaking several initiatives to drive future growth—like enhancing its digital sales through investments in technology and entering into strategic partnerships, including with Microsoft, Walgreens Boots Alliance, and Ocado. Kroger’s digital sales surged 58% in fiscal 2018 as the company continues to enhance consumers’ shopping experience through facilities like Kroger Pickup. Kroger has also been working on alternative profit streams like Kroger Personal Finance and Kroger Precision Marketing.

Fiscal 2019 outlook

Kroger anticipates same-store sales, excluding fuel, in the range of 2.0%–2.25% in fiscal 2019. The company expects its fiscal 2019 EPS in the range of $2.15–$2.25. Analysts were expecting adjusted EPS of $2.26 in fiscal 2019.

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