Please ensure Javascript is enabled for purposes of website accessibility

Kroger Goes on a Hiring Spree

By Jamal Carnette, CFA – Apr 16, 2018 at 9:42AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The grocery chain is hiring 11,000 people to compete against Amazon and Walmart. Should you take a bite of this cheap stock?

Kroger Company (KR -1.69%) had a decent fourth quarter by the numbers. The company reported adjusted EPS of $0.63, in line with analyst estimates, and revenue of $31 billion, beating the consensus by $200 million. Instead of shares rallying on the report, they sharply sold off due to weaker-than-expected guidance from management.

Specifically, Wall Street was less enthused by Kroger's plans for the savings created by the recently enacted GOP tax cut. Instead of having the bulk of the savings tumble down the income statement to shareholders, Kroger management planned to equally split the largesse three ways: on employee salaries, capital investments, and shareholders. Kroger's plan to spend on employees is coming into focus, but will it lead to stock gains?

Shopper in a grocery store looking at his phone.

Image source: Getty Images.

Kroger's hiring spree

According to a report from The Wall Street Journal, Kroger will invest in new employees in a major way. The supermarket plans to hire up to 11,000 employees, a 2% increase in its headcount, to improve customer service and increase efficiencies. Per the Journal, the hires will be at the store level and will include cashiers and personnel for the store's nascent online operations.

Kroger's management launched its Restock Kroger initiative last year to reinvigorate same-store sales. The company expects to spend up to $500 million on wages, benefits, and training.

Kroger has a lot riding on its Restock Kroger initiative because it's a heavily watched metric on Wall Street, and Kroger has endured a significant deceleration in this figure. In 2017, Kroger reported that same-store sales increased by 0.7%, lower than the 5.2% growth the company posted in 2014.

A little behind the curve, but priced as such

Due to intense competition in the sector, Wall Street watches Kroger's same-store sales closely. As a pure-play grocer, Kroger has found itself under attack from the supercenter model, most notably Walmart and Target. And now grocers are shifting to online order and delivery, with Amazon expected to be a force in this market due to its Whole Foods acquisition.

The company appears slightly behind the curve on the convenience factor. While the superstores and Whole Foods are busy developing online business, Kroger is doubling down on its Scan, Bag, and Go program with plans to expand from a pilot program to 400 locations this year. Scan, Bag, and Go allows customers to ring up their purchases via a handheld scanner, and avoid the checkout line. Kroger expects minor improvement from Restock Kroger and Scan, Bag, and Go, forecasting same-store sales to rise between 1.5% and 2% in 2018.

While Kroger faces increased competition, the stock is currently priced for Armageddon. The company trades at 11 times forward earnings versus the greater S&P 500's multiple of 17 times, while paying a dividend of 2% per year. Value-oriented investors should put the company on their watchlist, especially if the company's Restock Kroger initiative pays off in a major way.

 

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jamal Carnette, CFA owns shares of Amazon and Target. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Kroger Co. Stock Quote
The Kroger Co.
KR
$44.68 (-1.69%) $0.77
Walmart Stock Quote
Walmart
WMT
$132.25 (-0.65%) $0.86
Target Corporation Stock Quote
Target Corporation
TGT
$151.79 (-2.62%) $-4.08
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$114.80 (-2.72%) $-3.21

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
342%
 
S&P 500 Returns
107%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.