Massive Online Investments Hurt Kroger’s Q3 Profit Margin


Kroger Co. (NYSE: KR)

Kroger has been expanding its online investments in recent months in order to take up a favorable share of the U.S. grocery market.

The company has struck six deals this year, aimed at improving online sales and competing with rivals such as Walmart and Amazon.

However, that decision now appears to be squeezing its profit margins as is evident from its fiscal third-quarter results released on Thursday morning. The grocer even slashed its full-year net earnings guidance to reflect the market value adjustment related to its investment in British-based Ocado Group PLC.

Shares of Kroger were down 1% in premarket trade but jumped 2.24% to $29.27 at 12:50 a.m. in New York.

KR Earnings & Outlook

Net income for the three months ended Nov. 10 was $317 million, or $0.39 per share, down from $397 million, or $0.44 per share, in the year-ago period. Adjusted for one-time gains and costs, earnings were $0.48 per share. Net sales came to $27.67 billion, down 0.3% from the year-ago period.

Analysts were expecting adjusted earnings of $0.43 per share on net sales of $27.65 billion based on figures compiled by Refinitiv. Online sales increased 60% during the quarter, while identical-store sales rose 1.6%. For the full year, the company anticipates net earnings of $3.80 to $3.95 per share, down from its earlier forecast of $3.88 to $4.03 per share. It also expects adjusted earnings of between $2.00 to $2.15 per share.

Kroger CEO Comments

Rodney McMullen, Chairman and Chief Executive said, “Kroger is transforming our business model. We’re moving from a traditional grocer to a growth company with both a strong customer ecosystem that offers anything, anytime, anywhere, and asset-light, high-margin alternative partnerships and services. Restock Kroger is the blueprint for this transformation.”

 “We are strengthening the Kroger ecosystem by reducing costs and investing the savings in our associates, technology, and price to grow units, traffic and share. Leveraging our store, logistics and data assets in turn creates incremental new profit streams, which then further redefines the customer experience. In this way, our new growth model will be a virtuous cycle.”

Kroger Company Profile

Kroger Co. engages in the operation of retail food and drug stores, multi-department stores, jewelry stores, and convenience stores. It also manufactures and processes some of the food for sale in its supermarkets. The combination food and drug Stores are the primary food store format.

The multi department stores sells a wide selection of general merchandise items such as apparel, home fashion and furnishings, electronics, automotive products, toys and fine jewelry. The marketplace stores offer full-service grocery and pharmacy departments as well as an expanded general merchandise area that includes outdoor living products, electronics, home goods and toys.

The price impact warehouse stores offer a ‘no-frills, low cost’ warehouse format and feature everyday low prices plus promotions for a wide selection of grocery and health and beauty care items. The company was founded by Barney Kroger in 1883 and is headquartered in Cincinnati, OH. – CNN Money