Kroger Shares Fall on Profit Drop -- Update
Kroger Co.'s profit fell sharply as the nation's largest supermarket chain slashed prices and invested in new technology to keep up with rising competition among grocers.
The Cincinnati-based company also saw sales turn positive in its second quarter ended Aug. 12 and affirmed its financial guidance on profit for the year.
But Kroger's announcement Friday that it was suspending long-term earnings guidance spooked analysts and investors, and offered another sign of the volatile outlook for the grocery industry.
The company decided to stop guiding on its financial outlook further than a year because of the "dynamic operating environment" facing grocery today, Kroger Chief Executive Rodney McMullen said.
Kroger shares fell 6.2% in morning trading after dropping 8% premarket. Analysts viewed the decision to pull low-term guidance as a poor reflection of the company and the challenged industry as a whole.
It "underscores the high degree of uncertainty across food retail in the current environment," said Kelly Bania, food retail analyst for BMO Capital Markets.
A small 0.7% increase in same-store sales beat analyst expectations and reversed two consecutive quarters of declines in the key metric for retailers. A record period of falling food prices that sparked a discounting war on staples like milk and eggs hit Kroger hard. Before that downturn, Kroger's same-store sales grew in every quarter for 13 years.
Food retailer and distributor stocks have also tumbled this summer since Amazon.com Inc. said it was buying Whole Foods. Kroger's shares have fared worse than average. The grocer's stock was down 36% this year compared with a 16% loss for S&P food retailers.
Kroger has reduced the building of new stores to put that money into keeping the prices of food low, and said Friday that it was slashing $600 million in capital spending across two years.
Since the merger went through last week, Amazon has slashed prices on staples at Whole Foods stores nationwide, including items such as eggs and bananas that can drive grocery store trips. The e-commerce giant has started stocking Whole Foods store-brand products, another potential headwind to Kroger given the increasing importance of natural and organic goods in its sales.
Kroger stores have less overlap with Whole Foods locations that are concentrated in cities and affluent suburbs, but analysts still expect the cheaper prices to stoke competition among retailers.
Kroger's profit during the period was down 8% from a year earlier. It confirmed full-year guidance of $1.74 to $1.79 of earnings per share.
The company reported $27.6 billion in revenue during the second quarter, and a $353 million profit.
The Houston area is Kroger's third biggest market with 115 stores, and the fallout from Hurricane Harvey is expected to affect the retailer's performance in the third quarter. Executives are expected to discuss the storm during the grocer's earnings call Friday morning.
Write to Heather Haddon at heather.haddon@wsj.com
(END) Dow Jones Newswires
September 08, 2017 10:02 ET (14:02 GMT)