Kroger (KR -1.86%) shareholders haven't had much to cheer in recent quarters. The retailer is losing ground in its battle for market share with Walmart (WMT 0.38%), as growth has slowed to a crawl. Profitability is declining, too.

These big-picture trends are likely to continue pressuring Kroger's sales and earnings when the company announces its fourth-quarter results on Thursday, March 7.

Let's take a closer look.

Share challenges

Kroger enjoyed nearly a decade of unbroken market-share gains relative to Walmart, but that trend has reversed over the last two years. Its third-quarter earnings report showed just a 1.6% uptick in comparable-store sales, or comps, versus roughly 3% for its larger rival. Among the improvements Walmart has made lately are better produce selections, remodeled store layouts, and aggressive spending on new online-order pickup and delivery options.

A man shops for groceries.

Image source: Getty Images.

There's good reason to expect another performance gap in the fourth quarter. Walmart credited its grocery business -- both in its stores and through online orders -- for helping it to achieve some of its best growth in a decade this past quarter. Comps rose 4.2% in the chain's latest period, accelerating from the prior quarter's 3.4% increase. Kroger, meanwhile, projected back in early December that comp sales growth would likely hold close to a 2% pace.

Check out the latest earnings call transcript for Kroger.


Kroger is fairly early in its restructuring plan, which aims to position the supermarket chain for a multichannel selling environment. Following Walmart's example, it has made some aggressive acquisition moves recently, like partnering with British online grocer Ocado and buying meal-kit company Home Chef.

Executives refer to their broader strategic shift as "Restock Kroger," and investors are likely to hear a lot about the plan's progress in conjunction with the earnings report on Thursday. The last report contained faint signs of momentum building on this score, as Kroger's gross profit margin ticked higher versus the prior quarter.

Investors will find out on Thursday whether that modest progress continued into the fiscal year's final quarter. In any case, profitability is likely to be muted, as it has been for Walmart, as Kroger spends cash to build out its online selling and delivery platform while at the same time cutting prices so it can defend its market share.

Looking ahead

Fiscal 2018 marked the first full year of Kroger's rebound plan, and barring a big surprise in the fourth quarter, it was a mixed bag. Sure, earnings likely outpaced initial targets thanks mainly to cost cuts. However, the supermarket giant hasn't yet found a way to return to healthy growth in market share.

Given Walmart's recent success, that path isn't likely to get any easier. In fact, Walmart told investors last week that it plans to double its grocery delivery footprint in 2019 as part of an $11 billion capital spending initiative.

Kroger has a massive sales base and a large pool of loyal customers. These assets should help it target the same attractive growth niches that Walmart is aiming for. However, even in the best-case scenario, the multichannel shift will result in temporarily lower profit margins. Thus, investors shouldn't expect Kroger to project substantial earnings growth when it issues its preliminary outlook for fiscal 2019. And there's no telling when -- or if -- the retailer will ever achieve its prior long-term goal of 8% to 11% annual earnings-per-share growth.