Kroger Short Interest Soars on Amazon Fears

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Supermarket giant Kroger Co. (NYSE: KR) saw a jump of 23.5% in short interest during the two-week period ending September 15. The stock price dropped by 2.8% in the period.

The company reported second-quarter results on September 8 that met very modest expectations. At the same time the grocery chain said it would no longer provide long-term guidance, a move that analysts interpreted as a sign of pessimism about the future.

Kroger, like every other grocer, has been whacked by Amazon.com Inc.’s (NASDAQ: AMZN) acquisition of Whole Foods. When that deal was completed, Amazon wasted no time lowering prices on many Whole Foods items, stoking fears that it would seek to drive prices — and margins — even lower going forward.

Year to date, Kroger’s stock price is down 40% and the shares have dropped 45% below their 52-week high. Wal-Mart Stores Inc. (NYSE: WMT), usually seen as Amazon’s primary target in both merchandise and groceries, is up nearly 15% for the year to date.

Deutsche Bank dropped Kroger’s rating from Buy to Hold following the earnings announcement and lowered its price target from $26 to $21. Oppenheimer lowered its price target from $28 to $23 and cut its rating from Outperform to Perform. The consensus price target is now $23.10, ranging from a low of $17 to a high of $34.

Kroger recently announced that it would open next month an in-store restaurant called Kitchen 1883 in its Union, Kentucky, store. Presumably this concept — if successful — will be extended to others of the company’s nearly 2,800 food stores. This idea also failed to fire up analysts.

The threat from Amazon and its Whole Foods operation is primarily to Kroger’s operating margins. These currently hover around 3% and cannot go much lower. If Amazon were to, say, launch a delivery service for its Amazon Prime members in cities where Whole Foods and Kroger compete, how would Kroger respond? None of its alternatives are particularly attractive.

Kroger’s stock traded up about 0.8% Wednesday morning at $20.35 in a 52-week range of $19.89 to $36.44.