Shares of The Kroger Co. (NYSE: KR) fell 21.7% in June, according to data provided by S&P Global Market Intelligence, thanks to a combination of the grocery chain's disappointing quarterly report, and Amazon.com's (NASDAQ: AMZN) acquisition of Whole Foods Market (NASDAQ: WFM).
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To be sure, Kroger shares declined nearly 19% on June 15, 2017, the first trading day after the company posted adjusted quarterly earnings that were roughly in line with expectations. But those earnings came on higher-than-expected revenue -- a byproduct of Kroger's strategy, as chairman and CEO Rodney McMullen put it, "of lowering costs to reinvest in ways that provide the right value to our customers" -- even as identical-supermarket sales decline 0.2%. The market doesn't always reward higher sales if they come at the expense of profitability.
As such, for the full fiscal year 2017, Kroger now expects adjusted earnings per share in the range of $2 to $2.05, a reduction from its previous guidance for EPS of $2.21 to $2.25.
Then, only a day later, Kroger shares plunged another 9% after Amazon announced it would acquire Whole Foods Market for $42 per share in a deal worth $13.7 billion, including Whole Foods' net debt. To be fair, it will take time for Amazon's yet-to-be-solidified vision for Whole Foods to play out -- the transaction isn't expected to close until the second half of this year, after all -- but it stands to reason that Amazon and Whole Foods working together to upend the grocery aisle could be a bad thing for larger chains like Kroger.
As fellow Fool Chuck Saletta argued shortly after Kroger's second plunge last month, Kroger is no stranger to lower-margin grocery titans trying to muscle into its turf, and even grew stronger as it successfully fended off its incoming competitors. So with shares trading at around 11.3 times this year's expected earnings after last month's drop, this could prove a perfect chance for patient investors to open or add to a position in this industry leader.
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John Mackey, CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Steve Symington owns shares of Whole Foods Market. The Motley Fool owns shares of and recommends Amazon and Whole Foods Market. The Motley Fool has a disclosure policy.