Kroger, the supermarket operator, saw its stock tank in what is the largest sell-off of shares in months over declining gross margins for its fiscal fourth quarter.
According to a report in MarketWatch, shares of Kroger declined more than 12% in trading Thursday (March 8), despite posting fiscal fourth-quarter earnings that met Wall Street expectations and revenue that surpassed forecasts. It’s the steepest sell-off in the stock in nine months, according to MarketWatch. On June 15 of 2017, shares descended 18.9% because of a less-than-stellar profit outlook, noted the report.
For its fiscal fourth quarter, Kroger had net income of $854 million or $0.96 a share, which is up from $506 million or $0.53 a share in the year-earlier fiscal fourth quarter. Excluding items, adjusted EPS was $0.63, matching the Wall Street earnings predictions from FactSet. Meanwhile, revenue hit $31.03 billion. In the year-ago fiscal fourth quarter, revenue was at $27.61 billion. Wall Street was looking for revenue of $30.82 billion. Same-store sales growth of 1.5% was in line with was expected. Gross margins came in at 21.9% of sales, down 31 basis points and worrying Wall Street.
BMO Capital Markets analyst Kelly Bania told MarketWatch that the gross margins were “meaningfully lower” than the ten basis point increase she has been looking for. It’s also a “major deceleration” from the 30 basis point growth in margins during the third quarter and under the fourth quarter average of growth of 17 basis points. The analyst noted in the report that the outlook for margins for all of the current fiscal year could be weak based on its guidance. She told MarketWatch that the EPS guidance implies the company could be reinvesting its money, which she said could mean all of the tax savings will go back into the business. Meanwhile, CFRA analyst Joe Agnese lowered his price target on Kroger to $25 from $28, arguing that gross margin pressure as Kroger reduces prices to compete will be a drag on the stock.