Wells Fargo Comes Away Disappointed From Kroger's Management Meeting

Kroger Co KR hosted a meeting Wednesday to introduce new CFO Gary Millerchip. While the company did address some concerns, there continues to be a lack of clarity into the reasons for the grocery chain's poor fourth-quarter performance and why management expects a positive inflection in 2019, according to Wells Fargo.

The Analyst

Wells Fargo’s Edward Kelly maintained an Outperform rating on Kroger with an unchanged $29 price target.

The Thesis

Kroger told analysts that the fourth quarter was impacted by several onetime factors, including supply chain investment headwinds, incentive comp and vacation accruals as well as a lower LIFO credit, Kelly said in a Wednesday note. 

The factors affecting the fourth quarter have been experienced by the company in the past, albeit not as severely, the analyst said. 

Kroger said its guidance reflects core EBIT growth in 2019, Kelly said.

Kroger’s stock will appreciate significantly if management is able to just achieve the guidance, the analyst said, adding that visibility remains low, with a need for supermarket IDs to improve and gross margin that's likely to contract further.

It is likely that Kroger reinvested its fuel profits, making fourth-quarter core earnings poor but positioning the company for a better 2019, Kelly said. 

It was difficult to explain what occurred in the absence of visibility and management’s failure to own up, he said. 

Price Action

Kroger shares were up 0.53 percent at $24.86 at the time of publication Thursday. 

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