Stock in the red

Kroger (KR) stock fell 10% on March 7—the day the company announced lower-than-expected sales and earnings for the fourth quarter of fiscal 2018[1. Fourth quarter of fiscal 2018 ended on February 2]. Kroger also issued a disappointing outlook for fiscal 2019. The stock fell 4.5% on March 8.

The decline in Kroger stock due to its dismal outlook sent the stock into the red on a YTD (year-to-date) basis. Kroger stock has fallen 11.0% YTD basis as of March 8. Walmart (WMT), Target (TGT), and Costco (COST) stocks have risen 4.8%, 14.7%, and 11.8% respectively, YTD.

Kroger’s 2019 Outlook Dragged Its Stock Down

Growth investments

Amazon’s (AMZN) expansion into the grocery space with its acquisition of Whole Foods in 2017 increased the competition. Kroger and its peers have been investing in technology and omnichannel capabilities. However, the investments are putting pressure on the company’s earnings. Kroger is keeping its prices low to stay competitive, which is weighing on its profitability.

In the fourth quarter, Kroger’s adjusted EPS fell 23.8% to $0.48 and missed analysts’ forecast of $0.52. Lower sales and higher expenses to support the company’s growth initiatives under the Restock Kroger program impacted the company’s fourth-quarter earnings.

Kroger’s adjusted EPS was $2.11 in fiscal 2018—compared to $2.04 in fiscal 2017. The company’s bottom line in the fourth quarter and fiscal 2018 was impacted negatively by an additional week in the previous fiscal year.

Kroger expects its EPS to be $2.15–$2.25 in fiscal 2019. The guidance missed analysts’ expectation of an adjusted EPS of $2.26.

Under the Restock Kroger program, the company is focusing on a high margin and asset-light businesses (like Kroger Personal Finance), which should generate 20% profit growth in fiscal 2019.

In this series, we’ll discuss Kroger’s recent results. We’ll discuss the company’s sales, margins, and analysts’ recommendations. Next, we’ll discuss Kroger’s sales.

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