When you look at where major stock indexes finished today's trading session on Wall Street, Friday might have looked like a quiet day. But the purchase of Whole Foods by Amazon grabbed the attention of investors across the markets, and although those two stocks soared, many of their competitors in grocery and more broadly across the retail sector suffered as a result. That's a big reason why Kroger (NYSE:KR) and Costco Wholesale (NASDAQ:COST) were among the worst performers on the day, but unrelated news was responsible for a substantial decline in Booz Allen Hamilton Holding (NYSE:BAH) shares. Below, we'll look more closely at these stocks to tell you why they did so poorly.
Kroger, Costco deal with potential fallout
Kroger and Costco stocks both suffered significant losses, falling 9% and 7%, respectively. For Kroger, the news only added more ammunition to the bearish case against the stock, which collapsed yesterday after the grocery store chain announced tepid fiscal first-quarter results and gave downbeat guidance for the full year. Even before today's merger announcement, the threat of a price war in the food retail industry was looming large over Kroger, and now, the reputation that the leader in online retail has for squeezing margins as tightly as possible could lead to even more pain for the industry going forward.
Meanwhile, Costco also owed some of its declines to the bad news of the merger, because Costco gets a substantial portion of its revenue from its grocery operations. Groceries also represent a key reason for Costco shoppers to make repeat visits on a regular basis, and that in turn bolsters Costco's non-grocery revenue as well. However, Costco has been one of the more successful retailers in resisting the impact of e-commerce competition, creating an extensive website of its own and using the power of membership fees to encourage loyalty and retain customers year after year. Costco also emphasizes keeping margins as low as possible, and so the final battle of retailers could end up including the warehouse giant as the defender of the brick-and-mortar retail business model.
Booz Allen faces an investigation
Finally, shares of Booz Allen Hamilton Holding dropped 19%. The defense contractor said in an SEC filing late Thursday that the U.S. Department of Justice is conducting a civil and criminal investigation relating to Booz Allen's cost accounting and indirect-cost charging practices with the U.S. government. Booz Allen said that its own audit processes, both internally within the company and from external auditors, haven't identified any material weaknesses or significant deficiencies, and it hasn't found any erroneous charges, either. Yet with the Trump administration actively looking for ways to make the federal government more efficient and save money, investors were quick to react negatively to the news, and the stock could stay under pressure until the DOJ investigation is complete.
John Mackey, CEO of Whole Foods Market, is a member of The Motley Fool’s board of directors. Dan Caplinger owns shares of WFM. The Motley Fool owns shares of and recommends AMZN, Costco Wholesale, and WFM. The Motley Fool has a disclosure policy.