9-3-17 8:14 AM EDT | Email Article
By Heather Haddon 

Kroger Co. is looking for a sales bump to show investors and analysts it can withstand Amazon.com Inc.'s rapid advance in the grocery business.

Shares in the nation's largest supermarket by store count and sales have slid 35% this year, erasing more than $7 billion in value. Investors are watching whether Kroger and other grocers can hold on to customers after Amazon's takeover of Whole Foods Market Inc. The company reports second-quarter results on Friday.

Deep-discounting European chains and online grocers are also threatening Kroger's market share. Food retail stocks are down nearly 20% this year, according to FactSet.

Kroger has been confronting the multitude of headwinds by slashing prices on staples, adding online ordering options and meal kits in some stores, and investing in technology to better market to consumers. It is slowing store growth, offering voluntary buyouts and ramping up other cost-cutting efforts to do so.

As the world's third-largest retailer after Wal-Mart Stores Inc. and Costco Wholesale Corp., Kroger is also considered a barometer of U.S. consumer sentiment and economic trends. A historic run of falling food prices hurt grocers and sparked a price war recently. Analysts will be watching on Friday to see whether food prices are rising now. Retailers typically react to rising inflation by raising prices in their stores. But increasingly competition in the grocery industry could keep some from doing so this time.

Kroger's same-store sales fell in the past two quarters after 13 years of quarterly growth. Analysts expect the Cincinnati-based company's second-quarter earnings on Friday to show a slight rise in same-store sales. Analysts polled by Thomson Reuters expect a 3% revenue increase to $27.5 billion from the prior year's quarter.

Earnings per share are expected to fall slightly, and some analysts still expect Kroger to revise down its full-year guidance in the months to come as it seeks to defend its share of the nearly $800 billion U.S. grocery market.

"A bounce may prove fleeting," Jefferies analyst Christopher Mandeville said. "The grocery landscape is not getting any easier."

Amazon marked its takeover of Whole Foods last month by cutting prices on many staple foods and marketing Whole Foods branded products on its site. The online offerings could threaten Kroger's attempts to market more of its own natural and organic products.

A Kroger spokeswoman said customers have become loyal to the company's store-brand natural goods. Last year, shoppers spent $16 billion on those products, representing about 14% of the company's total sales.

"We're very proud of the role we've played in making natural and organic products more affordable and accessible to all customers, especially for shoppers on a budget," she said.

Investors will also be looking for updates on Kroger's efforts to sell groceries online. By the end of the year Kroger plans to allow consumers to order their groceries online for pickup in 1,000 of its stores. The grocer is also testing delivery through the third-party Shipt Inc. service and Uber drivers in some markets.

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

 

(END) Dow Jones Newswires

September 03, 2017 08:14 ET (12:14 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.
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