3-8-18 12:11 PM EST | Email Article
By Heather Haddon 

Shares in Kroger Co. dropped 12% on Thursday as the grocery-store chain said investments in online operations that aim to compete with Walmart Inc. and Amazon.com Inc. are cutting into profit.

Kroger reported net income of $854 million, or 96 cents a share, for the fourth quarter, up from $506 million, or 53 cents a share, a year earlier. But gross margins were down, a disappointment after rising in the preceding three-month period as the Cincinnati-based grocer cracked down on costs.

Thursday's stock drop was Kroger's largest since June, when the company reported weak sales early last year. Kroger shares fell further that month when Amazon said the next day that it was buying Whole Foods Market.

Kroger executives on Thursday said profit would continue to suffer as the company races to compete with Amazon by expanding its e-commerce platform, lowering prices and overhauling the selection at its 2,800 stores. They said the company should be more profitable in its 2019 and 2020 fiscal years.

Other grocers have also disappointed investors recently with heavy investments in new product offerings and means of reaching customers. Walmart's shares surged earlier this year on expectations for its online sales potential, then tumbled last month after that business showed less growth than expected. Shares in Target Corp. slipped Tuesday after the retailer reported heavy spending had hurt profits more than expected. And Dollar Tree Inc. on Wednesday missed earnings and sales expectations at comparable stores.

Like most retailers, Kroger has seen commodity prices, freight costs and wages cut into its bottom line recently. Merchandising costs rose 13% in the fourth quarter and operating costs jumped 33%, while total sales rose 12%. Same-store sales excluding fuel grew 1.5%, slightly ahead of the consensus forecast from analysts of 1.4% growth.

For the current year Kroger expects per-share earnings of $1.95 to $2.15 on same-store-sales growth of 1.5% to 2%. Excluding the impact of the new federal tax legislation and other items, earnings rose 19% to 63 cents a share. Revenue grew to $31.03 billion.

Imani Moise contributed to this article.

Write to Heather Haddon at heather.haddon@wsj.com


(END) Dow Jones Newswires

March 08, 2018 12:11 ET (17:11 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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