Investors weren't happy that the grocery store chain's growth was sluggish throughout the year. Comparable-store sales were slightly negative for the first two quarterly reports of 2017, in fact, compared to gains of 5% or better as recently as 2015.
But Wall Street reacted even more harshly to news that Kroger had decided to sacrifice profits to protect its market share. CEO Rodney McMullen and his team lowered their earnings outlook in June before stepping away from their long-term target of improving profits by between 8% and 11% each year. Instead, earnings are on pace to decline in 2017 for the second consecutive year.
The good news is management expects the current quarter to mark Kroger's fourth consecutive period of accelerating sales growth, which suggests its defensive strategy is working.
The retailer has identified a few major strategic initiatives that it believes will power additional gains in the coming years, including home grocery delivery and an aggressive push into prepared foods.
It's not clear when (or if) these shifts will put the business back on track toward double-digit profit growth. Still, Kroger has successfully navigated difficult selling environments in the past, so I wouldn't bet against this market leader.