Kroger Shares Slide as Grocer Is Battered by Price Fight -- 2nd Update

By Annie Gasparro and Austen Hufford 

Shares in Kroger Co. fell 18% on Thursday, their steepest drop in more than 15 years, after the supermarket giant said intensifying competition would continue to cut into earnings this year.

It is the latest example of troubles roiling big grocers, which are battling volatile food prices on one front and stiff competition on another. Kroger's stock was already down 12% so far this year after company's sales declined in the first quarter, breaking a 13-year streak of quarterly sales growth.

On Thursday, Kroger reported lower sales at longstanding stores for the second straight quarter and cut its earnings outlook for this year.

"The company is far from returning to normal growth," said Wolfe Research analyst Scott Mushkin. "We believe the economic model of the traditional grocery store is incredibly challenged."

Kroger's downbeat outlook triggered sharp falls in shares across the food retail sector. Whole Foods Market Inc. fell more than 6%, while Wal-Mart Stores Inc. and Costco Wholesale Corp. shed more than 1.5%. Target Corp. was off by 3.5%.

Whole Foods is under pressure to reverse a nearly two-year decline in same-store sales that has halved the specialty food chain's share price. Wal-Mart, the largest U.S. food seller, is cutting prices to keep up with competition from Amazon.com Inc.

European discount retailers are also pushing deeper into the U.S. market. German-based chain Lidl opened its first U.S. store on Thursday in Wilson, N.C., where more than 100 people lined up ahead of time in a line stretching around the block, an industry analyst reported.

Rival German chain Aldi, which has had a presence in the U.S. for decades, plans to invest $5 billion over the next five years to open nearly 900 stores and remodel hundreds more.

Kroger's same-store sales, excluding fuel, fell 0.2% in Kroger's first quarter, the Cincinnati-based company said on Thursday, compared with a 2.4% rise in the same quarter a year earlier. Analysts polled by Consensus Metrix had expected a 0.7% decrease for the closely watched metric. Kroger said it still expects same-store sales growth of up to 1% this year.

Lower prices, though, cut into companies' profit margins, and in the latest quarter, Kroger's gross margin fell to 22.1% of sales from 23% in the first quarter last year.

"We will not lose on price," said Kroger Chief Executive Rodney McMullen.

Still, Kroger noted that same-store sales were positive in the last nine weeks of the first quarter and in the second quarter so far.

Kroger now expects annual adjusted earnings of between $2 to $2.05 a diluted share in 2017, compared with its previous estimate of $2.21 to $2.25. Analysts polled by Thomson Reuters expected $2.19 a share.

In all for the quarter, Kroger reported a first-quarter profit of $303 million, or 32 cents a share, down from $696 million, or 71 cents a share, a year earlier. Earnings on an adjusted basis were 58 cents a share.

Revenue climbed 4.9% to $36.29 billion.

Analysts polled by Thomson Reuters had expected $35.77 billion in revenue and earnings per share of 58 cents.

Write to Annie Gasparro at [e-mail] and Austen Hufford at [e-mail]

(END) Dow Jones Newswires

June 15, 2017 12:59 ET (16:59 GMT)

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