Why Comparable Sales Are Dragging Kroger Down

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When Kroger Co. (NYSE: KR) released its most recent earnings report before the markets opened on Thursday, the company said that it had $0.53 in earnings per share (EPS) on $27.61 billion in revenue. Thomson Reuters consensus estimates had called for $0.52 in EPS and revenue of $27.31 billion. In the fiscal fourth-quarter of last year, the retailer posted EPS of $0.57 in EPS and $26.16 billion in revenue.

Total sales, excluding fuel, increased 4.4% in the fourth quarter over the same period of last year. Recent mergers with Roundy’s and ModernHEALTH contributed to this growth. Unfortunately, same-store sales declined 0.7% in this time, which undercut all the positive earnings momentum.

During 2016, Kroger added 12,000 new supermarket jobs. Also this past year, the company posted its 12th consecutive year of market share gains.

In terms of guidance for the 2017 full year, the company expects to see EPS in the range of $2.21 to $2.25 and identical supermarket sales, excluding fuel, to range from flat to 1% growth. The consensus estimates are $2.23 in EPS and $121.2 billion in revenue.

On the books, Kroger’s cash, temporary investments and store deposits in transit totaled $1.23 billion at the end of the quarter, versus $1.20 billion in the same period from last year.

Rodney McMullen, board chair and chief executive of Kroger, commented:

True to our history, we will continue making proactive investments in our Customer 1st Strategy to maintain our strong competitive position. We are lowering costs to invest those savings in our people, our business, and technology. This approach will enable us to deliver on our long-term net earnings per diluted share growth rate target of 8 – 11%, plus an increasing dividend, as it has in the past.

He added:

In 2016, Kroger grew market share, increased tonnage, and hired more than 12,000 new store associates. For 2017 and beyond, we will continue delivering for our customers while also setting the company up for our next phase of growth and customer-first innovation.

Share of Kroger were last trading down 4% at $30.75, with a consensus analyst price target of $36.09 and a 52-week trading range of $28.71 to $39.22.