Kroger Just Can’t Catch A Break
Kroger’s stock took a plunge amid results that missed Wall Street expectations for revenues and earnings as well as a more pessimistic forecast on fiscal 2019 earnings. This comes on the heels of speculation that Amazon will be opening up non-Whole Foods branded grocery stores, which furthers the pressure on traditional brick and mortar retailers.
Kroger’s performance wasn’t all bad, despite Wall Street’s reaction.
• The company announced comp store sales of 1.9% for the quarter and expects to see increases of 2-2.5% for the year
• Digital sales were up 58% (from a presumably low base) and pick up is now available for roughly 90% of their customer base
• Private label sales exceeded 30% of total revenue on the quarter and Simple Truth is now a $2.3 billion brand.
What is clear is that Kroger is in the midst of a massive transition as it tries to transform its nearly 3,000 stores into a digitally savvy chain while simultaneously battling Walmart on the price front. Gross margins, as a result, are under pressure, and declined to 22% on an adjusted basis. And did I mention that they are being negatively impacted by lower gasoline prices which have also impacted their top line?
It is too early to judge Kroger’s performance. They acquired meal kit company Home Chef last year, have partnered with UK based Ocado to develop automated e-commerce warehouses and continue to aggressively test new initiatives, which include everything from self-driving deliveries, scan and go in-store checkouts and a partnership with Walgreens to create a convenience food section.
While Walmart and Target are now clearly showing traction from their omni-channel initiatives, the low margin grocery business has even less room for error, as these latest results show.
The Kroger story hasn’t been fully written yet—this was not one of their better chapters.
Neil Stern for Forbes