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Kroger's cost of fighting Amazon saps profit, shares dive


By and Balu

(Reuters) - Co forecast full-year profit below Wall Street's estimates on Thursday as its investments to fend off and squeeze the grocer's margins, sending its shares tumbling almost 13 percent.

The owner of some 2,800 supermarkets, including Ralphs, Harris Teeter, Meyer and Mariano's, use benefits from lower corporate taxes to expand services like home delivery, curbside pickup and self-checkout under its broad "Restock Kroger" program to make shopping more convenient and affordable, trading off capital spending for profits.

Executives said they were accelerating investment planned for the and forecast 2018 earnings of $1.95 per share to $2.15 per share, dipping below analysts' consensus target of $2.15 per share, according to I/B/E/S.

"You should expect gross margin to decline somewhat in 2018," said on a conference call with analysts.

"We're positioning the company to start growing again" in 2019 and 2020, added.

has not been patient since Amazon burst into the physical supermarket business with its $13.7 billion purchase of last year.

"offered more of the same tough medicine in its (2018) guidance, with a heavy dose of margin reinvestment implied," said

"Bears will seize on today's as further evidence of the heightened competition and impact of rising wages befalling brick and mortar retailers in the Age of Amazon," Montani said.

The Cincinnati-based company also is refining its product assortment, pricing, marketing and customer service under Restock amid a brutal price war with rivals ranging from Walmart to German discounters and

McMullen said would not cede ground to those competitors, nor would it make the price war worse.

"We're not going to lose on price, but we're not out there trying to lead the market down," McMullen said on the conference call.

plans $3 billion of capital expenditures in 2018, in line with 2017. It also expects to close the sale of 800 convenience stores to station operator for $2.15 billion later this year and use the proceeds to buy back shares and pay down debt. That sale is not included in its 2018 profit forecast.

Kroger's sales for the fourth quarter ended Feb. 3, rose 12.4 percent to $31.03 billion, topping analysts' target of $30.83 billion. Identical same-store sales were up 1.5 percent, edging past analysts' estimate of 1.45 percent, and the sales forecast for 2018 was roughly in line with expectations, a sign that customers are not abandoning

Net earnings attributable to jumped 68.8 percent to $854 million, or 96 cents per share.

Gross margin was 21.9 percent of sales for the fourth quarter. Excluding fuel, the 53rd week and a credit and charge for last-in-first-out inventory accounting, gross margin decreased 31 basis points from the same period last year.

Kroger's shares had gained about 16 percent in the past six months before dropping 12.7 percent to $22.91 in midday trading.

(Reporting by in Los Angeles and in Bengaluru; Editing by Peter Henderson, Sriraj Kalluvila, and Peter Szekely)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Thu, March 08 2018. 23:31 IST