What happened
Shares of Kroger Co. (KR -0.74%) were sliding today after the supermarket chain posted solid fourth-quarter earnings results but offered underwhelming guidance for the current year. As a result, investors, who were already apprehensive about the grocery industry following Amazon.com's acquisition of Whole Foods and its plan for free two-hour delivery, sold the stock. As of 11:41 a.m. EST, it was down 12.2%.
Image source: Kroger.
So what
For the quarter gone by, the nation's largest traditional supermarket said comparable sales increased 1.5%, and total sales jumped 12.4% with the help of an extra week in the quarter to $31.03 billion, ahead of expectations of $30.83 billion. Without the extra week or changes in fuel prices, revenue was up 2.7%. Digital sales jumped more than 90% as the company expands its grocery pickup program, ClickList.
Gross margin in the quarter fell 31 basis points to 21.9%, potentially due to increasing competition, but adjusted earnings per share still climbed from $0.53 to $0.63, matching estimates. Without the extra week, EPS would have been $0.54.
CEO Rodney McMullen credited the recent launch of the Restock Kroger initiative for helping the company finish the year with positive momentum, and said that customer loyalty was improving.
Now what
Despite the decent quarterly results, investors were instead focused on weak earnings guidance for the current year as Kroger projected profits of $1.95-$2.15 per share, compared to analyst estimates at $2.16 and $2.04 in 2017.
The company guided comparable-sales growth for the year at 1.5%-2%, showing that challenges remain on the cost side of the equation pressured persists not just from Amazon but also Walmart, Aldi, and Lidl, among others. The disappointing earnings guidance notwithstanding, the company is making the right moves by investing to deliver sales growth. After a two-day slide of 18%, the stock is starting to look oversold.
