Kroger Bears Seem To Outnumber Bulls Ahead Of Q3 Results

Deutsche Bank said investors exhibited cautious sentiment ahead of Kroger Co (NYSE: KR)’s third-quarter results on December 1 amid ongoing concerns around food deflation and the expansion of hard discounters, Aldi and Lidl.

Bulls Vs. Bears

The brokerage noted that bears easily outnumbered the bulls at its Kroger "Bull/Bear" lunch with investors. Apart from deflationary concerns, investors are concerned around Aldi’s recent Southern California expansion and Lidl, which plans to open a number of stores along the East Coast beginning in 2018.

Expectations Ahead Of Q3 And Beyond

Meanwhile, investors expect an in-line non-fuel ID growth and at the low-end of the management’s second-half range (+0.5 percent–1.5 percent).

“Given continued deflation, investors agreed that gross margins likely compressed a bit more, perhaps as much 15–20 bps (more than 20 bps could be a concern),” analyst Shane Higgins wrote in a note.

Looking ahead, investors will likely be focused on any color around quarter-to-date trends and the fourth-quarter outlook. Investors expect fourth-quarter non-fuel ID guidance to be +1.0 percent or better given easier compares.

In addition, bears pointed out that it would be tough for Kroger to grow EPS within the 8–11 percent per year long-term target if deflation persists into mid-2017.

Higgins maintains a Buy rating on Kroger, with a target price of $39.

At last check, shares of Kroger fell 1.42 percent to $32.63.