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Kroger: What To Watch For In Q4 2017 Earnings

Mar. 07, 2018 5:55 PM ETThe Kroger Co. (KR)22 Comments


  • Buying Kroger off the lows was a bet on management and a turnaround in execution. Thus far, investors have been rewarded for not capitulating late in 2017.
  • Not unsurprisingly, Kroger's share price tracks same-store sales comps data closely. The company is looking to continue momentum from a strong Q3.
  • Kroger should benefit from lapping very easy comps over the next six to nine months. This likely helps the company move positively on earnings release on ho-hum data.

Near the close of Q3 2017, I penned research on embattled grocer Kroger (NYSE:KR). Shares had been nearly cut in half on extremely weak results; value hunters were out in full force. My opinion struck a cautious tone, noting how sensitive Kroger common equity was going to be towards margins and same-store sales comps. As I said then, I'm not in the business of trying to predict the nuance of incremental margin improvement at companies as large as this one: it's a struggle with many moving pieces. Buyers who took that risk late in 2017 have done well, and I believe long investors have latched onto a lot of positives that they feel are on the horizon:

  • Increased sales of private label offerings
  • Continuing efforts into online/digital offerings
  • Taking further market share from independent producers
  • The sale of the convenience store assets to EG Group for $2,150mm

Indirectly, all of these initiatives are out there to do one of two things: improve same-store sales or improve margins. As investors can see below, Kroger's share price is tied inextricably to same-store sales performance; it's been a great leading indicator of where the share price is going. It's also easy for investors, particularly recent ones, to forget just how aggressive Kroger's same-store sales comps used to be. I think that provides great context for when investors start considering whether the company deserves to be trading north of $40.00/share today:

Cutting through all the noise in movement in the share price, comps, and margins is all it comes down to. What looks to be a clear bottom as found late in 2016, and I think bullish investors will have an easy time next year. 2017 had some rough results, particularly in the first half of the year due to deflation and poor margins, and that means Kroger will be

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This article was written by

Michael Boyd profile picture

Michael Boyd is an energy specialist with a decade of experience in both the investment advisory and investment banking spaces, with stints in portfolio management, residential mortgage-backed securities, derivatives, and internal audit at various firms. Today, he is a full-time investor and "independent analyst for hire.”

Michael leads the Investing Group Energy Investing Authority. The service focuses on finding total return opportunities within the energy sector, ranging from upstream producers to pipelines to refineries. Features include: model portfolios, real time trade alerts, high quality research, and an active and vibrant chatroom of professional investors. Learn More.

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Comments (22)

Ohhh might buy more here if it goes to $20
Michael Boyd profile picture
They comp-d a little better than I thought: 1.5% versus 1.4%.

Guidance was poor, given most of the Street was looking for, as I said, SSS ex fuel somewhere near 2%. The low end of the guide range (1.5%) has shareholders skittering away.
PSPnomore60 profile picture
Sounds like it will take the hit today and then creep back up in the weeks ahead.
KR is outside the "Trump" radar. It is down only because of "Wall Streets" stupidity about AMZN.

AMZN is NOT retail, or food companies armageddon.

As stated, AMZN's margins (with food and others) is 1%........AMZN is trading on AWS profits and Bezos is using that to get into other businesses.

? How do you be successful at 10 + businesses

KR should "beat the street' and if you are a mid to long term holder......your $$20-26.00 investment should return 30+%......

VaslavN profile picture
In for 1¢, in for 1£.
Who Dat? profile picture
I’m long near closing. I kick myself for not buying it at under $20.
Clauser1960 profile picture
People will always shop for food personally. Kr is an excellent defensive stock.
Good question. My view is that there is a lot of trading activity done by quant systems and given the results posted by giant Walmart were not impressive there would be a knee jerk reaction to sell. As long as one has done their homework right and have done thorough analysis of the stock from a margin of safety perspective One can sleep well.
... but why was it down so sharply today?
Investors are not expecting a good earning result.
Amazon is now expanding into India which is a very tough market to make money. I wish them luck and I do buy product from them from time to time but it’s stock is overvalued.
It is a good thing it is challenging the grocery sector which makes companies like Kroger pull up their socks and be more agile and productive. They know the industry and have a loyal client base. At the end of it the customer is king. I would like them to reduce their debt though. The stock had a nice run up and is still as per calculations undervalued. Hope the earnings tomorrow make it worthwhile. I have skin in the game. Long KR
I am expecting a bounce on earnings Thursday KR needs a good report.
I am thinking the opposite for tomorrow's KR earning. That is why I sold all my KR stock bought at $20 last year when it hit $28 and make some good money.
an pay the short term taxes too
KR is second biggest grocer in US after Walmart who is suffering from Amazon /Whole food fever and is undervalued based on earnings and margin of safety. Long KR
ckarabin profile picture
No way that Amazon ever makes money in groceries. It's 1% margin business and they do not have the heft to buy the products at a discount. Besides, they would need a plethora of warehouses and still would have the problem of fresh produce, meat, dairy and frozen food. If they do delivery, they would have to upcharge as margins do not allow that to be absorbed and then they'd be having to skim off only the high end customers who are not price sensitive. It'll never make a big dent in Kroger's sales
It sounds like you don't fully understand how Amazon works. Amazon bought WholeFood to put the Amazon lockers there and to get more people to sign up for its Amazon Prime. Amazon does not plan to make lots of money from grocery.
Amazon does not make lots of money, 1 cent on the dollar...if that
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