The short interest in Kroger Co. (NYSE: KR) rose an extraordinary 77%, or 69 million shares, in the period that ended April 30. That represents the largest short bet against any New York Stock Exchange traded company during the period. It also represents a major bet against a company the business of which is under siege by Walmart Inc. (NYSE: WMT) and Amazon.com Inc. (NASDAQ: AMZN).
Kroger shares are down 13% this month to near $24. This is despite the sales of its convenience store operations for $2.15 billion. Kroger will use $1.2 billion to increase its share buyback program. These stock plans are often frowned upon because there is scant evidence they improve share prices. As a bet that its overall business will improve, Kroger said it would hire 11,000 workers.
In the meantime, Kroger’s same-store sales rose only 1.5% (without fuel) in its fiscal fourth quarter. Its guidance for the 2018 fiscal year was basically no better: 1.5% to 2.0% growth. In the fourth quarter, operating income was $44 million, compared to $858 million in the same quarter the year before.
Kroger’s problems have been chronicled repeatedly in the press. It has been flanked by Amazon’s food business, particularly since it bought Whole Foods. Walmart has become more aggressive as it fights Amazon. The struggle between the two has left Kroger in the midst of what may be the largest shift in the grocery business in years.
Kroger continues to benefit from scale. As of March 8, it had 2,782 locations across 35 states. It also had 1,489 gasoline station facilities. Like many brick-and-mortar retailers, Kroger has to contend with the possibility that people increasingly use the internet to shop, in its case for food. Although Kroger’s future is threatened, the jury is still out on whether people will treat food shopping the way they do for consumer electronics or clothing.
Kroger faces a big bet against it on Wall Street. More and more of the smart money believes it cannot hold off the future of retail forever.
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