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         Krogerís Revival Hits a Snag as Forecast Disappoints Investors

         Kroger Has More Than Just an Amazon Problem



Krogerís Revival Hits a Snag as Forecast Disappoints Investors


By Matthew Boyle, Bloomberg

March 7, 2019


Kroger Co. tumbled the most in a year after its holiday-period performance and full-year expectations disappointed investors, showing how tough things are for traditional supermarkets.


         The company sees full-year profit in a range of $2.15 to $2.25 a share -- below analystsí average estimate of $2.28. Its fourth-quarter revenue also fell short of estimates, sending the shares down as much as 13 percent Thursday.


Key Insights


         Kroger is lowering prices, remodeling about 1,000 stores and centralizing its e-commerce operations to boost growth, yet those moves have weighed on sales and profitability. Gross margins contracted nearly a full percentage point in the quarter, hurt by price cuts and supply-chain improvements. Shareholders had hoped that the heavy lifting is now done and that the investments will start to bear fruit in 2019, but the companyís forecast calls this into question.

         The grocer is also looking for new sources of revenue such as digital advertising, which is more profitable than its core business of selling food. Kroger expects the ad business and other new endeavors to help generate $400 million in additional operating profit by the end of 2020.

         Competition in the grocery space is always fierce, and could get even tougher for Kroger as reports surfaced last week that Inc. is looking to open more supermarkets beyond its existing Whole Foods Market locations. Still, Amazonís ability to crack the code on groceries remains unproven, Bloomberg Intelligence analyst Jennifer Bartashus said.


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Kroger Has More Than Just an Amazon Problem


By Charley Blaine,

Mar 06, 2019 - Yes, apparently wants to start a supermarket chain. No, it isn't going to put Kroger Co ., one of the largest supermarket chains, out of business.


A Wall Street Journal report that Amazon (NASDAQ:AMZN) was looking to start a new brand of supermarkets in some of the largest markets sent Kroger (NYSE:KR) shares down nearly 4.5% on Friday. The shares still haven't recovered.


Kroger is set to report earnings before U.S. markets open Thursday. Analysts polled by expect the company to report earnings of 52 cents a share in the fiscal fourth quarter, down from 63 cents a year ago with revenue of $28.5 billion, down 8.3%. The stock is up slightly in 2019 and was flat in 2018 after a 5% hit in the fourth quarter.


But Amazon isn't Kroger's biggest problem -- yet. A huge problem, which has contributed to Kroger's 35% stock price decline since 2015, is that big chains are stepping all over one another. And there are other competitors like Costco Wholesale (NASDAQ:COST).


Kroger is still big. It operates 2,765 stores nationally, plus a network of food processing plants, including 17 dairies and 10 deli/bakery operations. Store brands generate more than a third of sales with higher profit margins. About 90% of grocery shopping is still done in stores, which are located to attract customers within a few miles.


But the art of surviving is painful, even for a company founded in 1883. Kroger abandoned 14 Kroger-branded stores in the Raleigh-Durham region in North Carolina last year.


And online and Amazon pose big challenges. Last year, the Food Marketing Institute projected online sales will account for 20% of grocery sales by 2025, with Amazon among the leaders.


Kroger isn't sitting still...