Grocery store stocks are being eyed by investors after Kroger (KR +6.5%) issues a strategy update and, perhaps more importantly, backs its current EPS forecast.
The grocery store giant also said that it sees flat EPS growth for next year, a shot of confidence amid sector concerns on wage pressure and Amazon pricing competition.
The update from Kroger has relevance for a large number of companies, including Supervalu (SVU +1.4%), Sprouts Farmers Market (SFM +1.5%), Weis Markets (WMK +0.4%), Ingles Markets (IMKTA -0.1%) and Target (TGT +1.9%).
Grocery store stocks start the week off on a down note after Barclays warns on the impact of Amazon.
Though the Barclays thesis isn't anything new, analyst Karen Short issues a more dire assessment on the sector than what most other analysts have published..
She writes that most grocers lack "scale, sophistication and the balance sheet in order to make the necessary investments" and maintains that no food retailer will be left unscathed from the Amazon-Whole Foods evolution (per Bloomberg).
In a broad look at grocery-related stocks -- Casey's General Stores (CASY -1.1%), Kroger (KR -1.9%), Supervalu (SVU -3.1%), Ingles Markets (IMKTA -2.6%), Weis Markets (WMK -4.2%), Core-Mark (CORE -1.6%), Smart & Final Stores (SFS -7.1%), iFresh (IFMK -3.1%), Sprouts Farmers Market (SFM -1.9%), Costco (COST -1.8%), Blue Apron (APRN -1.5%) and Target (TGT -0.8%) are all swinging lower today.
Data tracking firm Thasos Group publishes a report on the impact of the price cuts at Whole Foods (NASDAQ:AMZN) fired off on August 28.
Foot traffic was down 4% Y/Y at Whole Foods stores for the week following the pricing move, but was elevated in comparison to the three weeks before the action.
While the largest percentage of Whole Foods customers during the week were regular shoppers from Wal-Mart (NYSE:WMT), Kroger (NYSE:KR) and Costco (NASDAQ:COST), on a percentage basis adjusted for stores chain size it was Trader Joe's and Sprouts Farmers Market (NASDAQ:SFM) that saw the biggest impact.
Thasos says "customer defection rates" remained elevated for all the chains through September 16.
Amazon (NASDAQ:AMZN) is estimated to have sold about $1.6M in Whole Foods brand products off its site in the month since taking over the grocery chain. While deli turkey breast and coconut water were hot sellers, condiments and health/beauty items saw less demand.
Perhaps more intriguing are the estimates on Whole Foods store traffic. Data indicated that traffic jumped 10% in August following the Amazon announcement of price cuts, but fell about 4% below average in September.
Shares of Kroger (NYSE:KR) are down about 30% since the AMZN-Whole Foods deal was announced, while Sprouts Farmers Market (NASDAQ:SFM) is off 20%.
As reported by Bloomberg, data from Foursquare Labs showed a 25% increase in traffic at Whole Foods in the first two days after the Amazon (NASDAQ:AMZN) purchase closed (your humble editor set foot in WFM for the first time in years last week).
The rough run continues for competitor Sprouts (SFM -5.3%), now off 20% in the last two weeks.
Barclays issues its thoughts on how it see the Whole Foods evolution under Amazon (AMZN +0.1%) playing out.
The firm expects broad price cuts across key categories, while some areas such as apparel are drastically paired down. Extra store space is seen going to Amazon innovation/help stations and online order pickup/Amazon Lockers.
Beyond the brick-and-mortar plans from Seattle, pricing strategy is seen as crucial.
"If AMZN were to reduce WFM’s merchandise margins to KR’s (~25%), WFM would generate an operating loss in the $1.2B range annually (excluding any offset from operating expense reductions from automation etc…)," calculates Barclays.
"The demise of mediocre conventional retailers will meaningfully accelerate, in our view - as will the demise of other higher priced natural/organic/specialty retailers," writes the Barcap team. That last part isn't good news for Vitamin Shoppe (VSI -3.2%), GNC Holdings (GNC -2.5%) and Natural Grocers by Vitamin Cottage (NGVC -2.3%).
Investors are betting with Barclays on the retail reset today. Sprouts Farmers Market (NASDAQ:SFM) is down 9.64% and is 19% lower over the last three trading sessions, while Apollo-backed Fresh Market bonds have plunged in value. Supervalu (SVU -3%) and Kroger (KR -0.9%) are also slipping again.
The food sector is also pricing the impact of Amazon shouldering in to the industry. Post Holdings (POST -1.5%), Hershey (HSY -1.1%)., Kellogg (K -2%), Conagra Brands (CAG -1.8%), Treehouse Foods (THS -1.3%) and Mondelez International (MDLZ -1%) are peeling off value.
Key events are scheduled for the companies listed below next week.
Notable earnings reports: American Software (NASDAQ:AMSWA) on August 28; Best Buy (NYSE:BBY), Hain Celestial (NASDAQ:HAIN) and Movado (NYSE:MOV) on August 29; Greif (NYSE:GEF), Ctrip.com (NASDAQ:CTRP), Workday (NYSE:WDAY) and Box (NYSE:BOX) on August 30; Palo Alto Networks (NYSE:PANW), Dollar General (NYSE:DG) and Lululemon (NASDAQ:LULU) on August 31.
IPO quiet period expirations: Venator Materials (Pending:VNTR) and Clementia Pharmaceuticals (Pending:CMTA) on August 28.
Secondary offering lockup expirations: Finjan (NASDAQ:FNJN), Bluebird Bio (NASDAQ:BLUE), Hamilton Lane (NASDAQ:HLNE) on August 28; Snap (NYSE:SNAP) on August 29; Savara (NASDAQ:SVRA) and TransUnion (NYSE:TRU) on August 31; Viper Energy Partners (NASDAQ:VNOM) on September 1.
Notable annual meeting: First Foundation (NASDAQ:FFWM) and La-Z-Boy (NYSE:LZB) on August 29
M&A closing: Amazon (NASDAQ:AMZN) takes over Whole Foods Market (NASDAQ:WFM) on August 28. Target (NYSE:TGT), Kroger (NYSE:KR), Wal-Mart (NYSE:WMT), Sprouts Farmers Market (NASDAQ:SFM), General Mills (NYSE:GIS), Kellogg (NYSE:K) and other food/grocery names will be in the spotlight as analysis on last week's sell-off pours in. DuPont (NYSE:DD) and Dow Chemical (NYSE:DOW) are expected to close on August 31.
Comparable sales updates: Costco (NASDAQ:COST) and Zumiez (NASDAQ:ZUMZ) on August 30; Buckle (NYSE:BKE), Cato (NYSE:CATO), Fred's (NASDAQ:FRED), L Brands (NYSE:LB) and Tandy Leather Factory (NASDAQ:TLF) on August 31.
FDA watch: GlaxoSmithKline (NYSE:GSK) expects to hear on Nucala sBLA review by August 28; Acorda Therapeutics (NASDAQ:ACOR) expects to hear on CVT-301 NDA by August 29; SteadyMed expects to hear on Trevyent NDA by August 29; BioMarin Pharmaceuticals to find out about pegvaliase BLA review by August 30.
Auto sales reports: Kelley Blue Book expects U.S. auto sales to increase 1.5% in August to 1.53M units. Forecast by automaker - General Motors (NYSE:GM) +6.1% to 272K, Toyota (NYSE:TM) +6.5% to 227K, Ford (NYSE:F) -3.5% to 206K, Fiat Chrysler (NYSE:FCAU) -3.5% to 190K, Honda (NYSE:HMC) +6.3% to 159K, Nissan (OTCPK:NSANY) +1.9% to 127K, Hyundai (OTCPK:HYMLF) -5.0% to 120K, Subaru (OTCPK:FUJHY) +7.6% to 65K, Volkswagen (OTCPK:VLKAY) +4.0% to 56K.
Barron's mentions: Upside is seen on Vornado (NYSE:VNO), Medtronic (NYSE:MDT), PayPal (NASDAQ:PYPL), Brinker International (NYSE:EAT) and Intel (NASDAQ:INTC) for investors. A retired hedge fund manager pitches the short case on Tesla (NASDAQ:TSLA). Investor angles on the space race are in the cover article.
Mayweather/McGregor: Sports books are reporting record volume on the boxing match. MGM Resorts (NYSE:MGM), William Hill (OTCPK:WIMHF) and Showtime owner CBS (NYSE:CBS) are set up for windfalls from the event. At last check, Oddsshark.com lists Mayweather -375 to win and McGregor +285.
Grocery store stocks could feel some pressure today after Wal-Mart reported its strongest quarterly comparable sales growth mark across food categories in five years. The Bentonville giant, which is continuing to sacrifice margins for grocery market share, lowered its annual profit guidance earlier today.
Kroger (NYSE:KR) is already down 1.19% in premarket trading. Wal-Mart's grocery pricing could also be a factor for Supervalu (NYSE:SVU), Smart & Final Stores (NYSE:SFS), Ingles Markets (NASDAQ:IMKTA), Sprouts Farmers Market (NASDAQ:SFM), Weis Markets (NYSE:WMK) and even Target (NYSE:TGT).