Kroger (NYSE: KR), a supermarket chain that competes with Wal-Mart (NYSE: WMT), Costco (NASDAQ: COST), and Supervalu (NYSE: SVU), issued its Q1 earnings report today. Not much came of it, though. The stock, as of this writing, isn't doing much in afternoon trading. Too bad for shareholders, because the bottom line beat the analysts.
According to the earnings preview from Michael Fowlkes, Kroger was expected to deliver around 61 cents per share. Well, Kroger earned 66 cents per share. The number improved last year's performance by 8 cents. Revenues were essentially flat. Same-store sales increased a little over 3%. When you think about it, Kroger did pretty well.
So why the muted stock reaction? Shares are up only 0.8% or so as I complete this sentence. Well, if you ask me, I think it's the mood of the market. Last time, Kroger rose on an earnings beat. There's no question, however, that the phrase market correction has taken on new urgency. The Dow seems to be having a tough time staying in the green today. Such sentiment is probably weighing on Kroger. Another thing most likely limiting the company's upside is the non-fuel gross margin, which saw a decline of 48 basis points. Lower prices were cited in the press release as a factor.
There have been a lot of reports discussing Kroger's ability to withstand a recession because consumers look to supermarkets to avoid costly dinners at expensive restaurants. Good theory, but the shares just haven't performed in line with such a thesis.
Because of the not-so-robust reaction to the earnings, and with the news flow about a possible summertime correction increasing (at least from what I've been able to gather), I don't feel any need to look at Kroger. The business seems to be doing okay, but buying a stock that might remain weak isn't a great strategy.
Disclosure: I don't own any company mentioned; positions can change without notice.
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Reader Comments (Page 1 of 1)
6-24-2009 @ 2:05AM
draw984 said...
I shop at Kroger's and prices have in some cases dropped as much as 50% especially the bread items to include Wonder Bread which was priced at $4/loaf...it's now $1.50. I agree unit sales are up at Kroger but margins are not as in this instance, flat. Kroger's contending with Wal-Mart prices doesn't ease the situation. Nevertheless, K is doing a great job for the consumer and steady for the shareholders.