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Has Kroger Shelved Its Sales Struggles? A Q2 Preview

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Has Kroger Shelved Its Sales Struggles? A Q2 Preview
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The grocery sector changed nearly overnight after Amazon.com, Inc. (NASDAQ: AMZN) entered the space through its acquisition of Whole Foods Market, Inc. Needless to say, investors are forgiven if they are nervous heading into Kroger Co (NYSE: KR)'s second-quarter earnings report on Friday.

Analysts at UBS are holding a somewhat optimistic view heading into the quarter. The firm's Michael Lasser maintains a Neutral rating on Kroger's stock with an unchanged $24 price target as the upcoming earnings report should show signs of improvement after a rough first-quarter report. The analyst is modeling Kroger to earn 41 cents per share in the quarter, which is 2 cents above the consensus estimate.

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Kroger is expected to report a 0.5-percent comp growth for the full quarter, Lasser commented in a research report. The company acknowledged that the first three weeks of the quarter were strong and grew at least 0.5 percent. As a whole, the macro environment also improved in the quarter as Food at Home CPI turned inflationary in July for the first time since November of 2015.

However, margin pressure will likely remain a key theme for the grocery chain in the quarter and the analyst is predicting a 50-basis-point decline in gross margins due to the competitive landscape and the effect of higher fuel sales.

Looking beyond the second quarter, Kroger's continued investments in price and labor will result in continued margin pressure for at least the next few quarters, the analyst added. While this may be the prudent move for the long-term it does call into question the company's ability to sustain its 8 to 11 percent long-term earnings per share growth profile.

Related Links:

Beginning To Understand The Whole Foods' Pricing Dynamic

The Biggest Threat To Kroger Isn't Amazon And Whole Foods — It's Still Walmart

Latest Ratings for KR

DateFirmActionFromTo
Oct 2018JefferiesMaintainsBuyBuy
Oct 2018UBSMaintainsNeutralNeutral
Oct 2018Deutsche BankDowngradesHoldSell

View More Analyst Ratings for KR
View the Latest Analyst Ratings

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