Home Opinion/Analysis The Kroger Case Keeps Getting Worst

The Kroger Case Keeps Getting Worst

ATHENS, GEORGIA - July 23: Kroger Supermarket July 23, 2012 in Athens, GA. It is the country's largest grocery store chain with over $90 billion in sales for the fiscal year of 2012.

For nearly two years it would have been easier to get investors to buy into Kroger Co. (NYSE: KR). But the way the company has been looking over the past week is enough to make any investor think twice about placing his money on the US-based company.

You might know Kroger as an organic food market company- kind of like Whole Food Markets and Walmart. In the US brick-and-mortar food retail market, Kroger has been a big name. In the past, Kroger’s sales revenue alone have hovered around multimillion targets, with individual stores denoting increases in revenue. However, things do not seem so favorable in 2017.

Last week the grocery store conglomerate announced its earnings for the first quarter of 2017. Being a big company, expectations were high among stakeholders and the management team although analysts showed low hopes for the company. Some of the figures that Kroger announced were a cause for concern.

In the first three months of 2017, Kroger reported its net income at $303 million. Now, this figure would have been impressive on any other firm, but for Kroger investors, it denoted a drop in revenue totaling at over 50%. And while the company announced last week that its sales revenue had increased overall, investors should note that the sales per store actually fell by 0.2%, below the estimated 0.5% that most analysts had predicted. The decline in same-store sales shows the company’s weak financial position when not taking into consideration Kroger’s economy of scale.

Kroger’s last in, first out charge also increased in 2017 from the same period in 2016. Last year, the company had a LIFO of 25 million, but this year the LIFO jumped to $80 million, one of the highest for Kroger since the recession period. What this means is that Kroger owners earned a lot more money in dividends in 2016 when compared to 2017.

Kroger announced is results on Thursday. Between Monday and Thursday, its stock price fell by about 19%. On Friday, Amazon (NASDAQ: AMZN) announced that it was buying up one of Kroger’s competitors, Whole Foods Market (NASDAQ: WFM). On that day Kroger share value plummeted by a further 9%, bringing Kroger’s share value down from $30 at Monday open to $22 by close of business on Friday. The almost 30% decrease in stock value in one week is one of the steepest declines the company has ever recorded.

On its own, Kroger is not doing well in the market. Its same-store sales are going down, and the net income is not significant enough to cover the deficit. Even with a strong revenue of $115 billion, Kroger’s market capitalization way beneath those of its competitors. Competition is going to be a big problem for the company in the months to come. Whole Foods Market is expected to grow under Amazon, which is bad news for Kroger since WFM outperforms Kroger even at its current stage. Add in companies like Walmart and Aldi and Lidl, which are looking to expand in the brick and mortar food retail industry, and you have a whole lot of problems for Kroger.