Kroger (NYSE:KR) appears to have everything it needs to follow the path that Walmart (NYSE:WMT) and Target have taken to supercharge customer traffic and thrive in a multichannel retailing environment. It markets to a wide base of loyal shoppers, for example, many of whom routinely purchase its popular in-store grocery brands.

Yet these assets haven't translated into market-share gains for the supermarket chain. Instead, Kroger's latest earnings report shows that it is falling further behind peers in key sales categories.

Here's a look at how the latest results stacked up against the prior-year period: 

 Metric

Q4 2018

Q4 2017

Change (YOY)

Revenue

$28.1 billion

$31 billion

(9.5%)

Net income

$259 million

$854 million

(70%)

Earnings per share

$0.32

$0.97

(67%)

Data source: Kroger's financial filings. YOY = year over year.

What happened this quarter?

Kroger's big-picture trends did little to change the broader business story. The chain is growing sales and protecting profits as it invests in transforming into a multichannel selling model. Yet both of these metrics are trailing those of rivals such as Walmart.

Check out the latest earnings call transcript for Kroger.

A customer shops for groceries

Image source: Getty Images.

Highlights of the quarter include:

  • Comparable-store sales, or sales at existing locations, improved by 1.8% to meet management's holiday-season forecast. That performance put the retailer at 1.9% growth for the full year. While that figure was at the top end of management's initial outlook, it significantly trailed peers like Walmart and Target, both of which recently posted their best annual growth rates in a decade.
  • Gross profit margin fell by about 1 percentage point to 22% of sales. Operating expenses rose, and the combined impact of these negative trends sent operating profit down to $391 million, or 1.4% of sales, from $550 million, or 1.8% of sales, a year ago. Walmart's comparable figure was 5.5% and inching higher, year over year.

What management had to say

In a press release discussing the results, CEO Rodney McMullen highlighted the fact that Kroger met management's targets for the year. "Kroger solidly delivered on what we set out to do in 2018," McMullen said, "which was an investment year that laid the groundwork for us to achieve our 2020 ... targets."

"We are transforming from grocer to growth company," McMullen continued, "by deploying our assets to serve even more customers and create margin-rich alternative profit streams." As wins along this score, management cited the company's 58% digital sales spike and its progress in selling in-store brands like Simple Truth.

Looking forward

McMullen and his team issued a 2019 forecast that suggests the fiscal year will be another test of investors' patience. Sales gains are projected to roughly hold steady at about 2% to continue to trail most major national retailing peers. Kroger expects to spend heavily on its digital transformation, too, with capital expenditures set to rise to as much as $3.2 billion -- excluding any acquisitions -- from $3 billion last year.

Initiatives like these have helped both Walmart and Target demonstrate improved resonance with shoppers in recent quarters, so Kroger is walking a well-worn path today. However, it's still a worrying sign for investors that the supermarket chain failed to take better advantage of what amounted to an especially strong year for the retailing industry in 2018. Given that performance, there's not much in Kroger's recent results to suggest that a significant growth rebound is on the way.