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Investors jittery over Kroger's Q1 earnings

EPS beat expectations, same-store sales did not
Posted at 10:13 AM, Jun 20, 2019
and last updated 2019-06-20 13:35:23-04

Kroger Co. shares turned sharply negative Thursday morning after the company’s first-quarter earnings failed to calm investor worries about sales and profit growth.

Kroger reported $37.3 billion in revenue and a $586 million profit, excluding the impact of divestitures and other unusual events. Earnings per share of 72 cents was a penny better than Wall Street analysts were forecasting. But Kroger’s identical-store sales growth was lower than some analysts were forecasting. The 1.5 percent growth rate is less than the 1.9 percent growth Kroger achieved in the same period last year.

Kroger’s stock price is down about 14 for the year. It increased 8 percent in early-morning trades before its earnings release. Then it declined more than 10 percent after the results were announced. The stock recovered after Wall Street’s opening bell. By mid-day, shares were down 2.5 percent to $23.05.

Kroger CEO Rodney McMullen focused on the positives in a press release that promised up to 2.25 percent identical-store sales growth for the full year. McMullen said the company is on track to achieve the goals of Restock Kroger, a massive restructuring initiative that includes investing in new technologies, upgrading stores and boosting profitability.

“The entire company is focused on redefining the grocery customer experience, improved upon by exciting partnerships that will create value,” McMullen said in a press release. “We are confident in our ability to deliver on our plans for the year and our long-term vision to serve America through food inspiration and uplift."

Kroger provided several updates on its rapid transformation into digital sales and home delivery. The company now has 1,685 pickup locations for customers who order online and 2,126 delivery locations that cover 93 percent of Kroger households. Digital sales increased 42 percent in the first quarter.

But analysts continued press the company on its lower-than-expected sales growth.

"Why do you think the share gains have slowed so much?" Wells Fargo analyst Edward Kelly asked CEO Rodney McMullen in a conference call. "What specific adjustments are you making?"

McMullen said Kroger is stepping up its game in a variety of areas, but bad weather around Easter and Mother's Day slowed its progress. So far in the second quarter, McMullen said identical-store sales are tracking closer to the year's expected growth rate of at least 2 percent.

"We’ve made significant improvement in some of the basic customer experience," McMullen said. "What we find is there’s a lag between when you make those improvements and when the customer starts rewarding you with their checkbook."