For Kroger, Is Selling Assets A Good Thing? Street Thinks So

Kroger Co KR stock jumped more than 5 percent on Wednesday after the company revealed it's considering selling 784 of its convenience stores, which include brands such as Turkey Hill Minit Markits, Loaf ‘N Jug, KwikShop, Tom Thumb and QuickStop. The company has hired Goldman Sachs to help it review its options.

Kroger stock was blasted by a devastating one-two punch back in June. The stock dropped 18 percent on June 15 after Kroger cut its full-year earnings guidance. Within two days, Amazon.com, Inc. AMZN announced it would be entering the grocery business by acquiring Whole Foods, sending Kroger stock down another 5 percent.

Investors didn’t get any relief in September when Kroger’s second-quarter earnings sent the stock tumbling another 7 percent.

When the dust finally settled on the Kroger sell-off, the stock had dropped from a June high of $30.77 to an October low of $19.69. The stock initially spiked as high as $22.03 Wednesday on news that the company may dump its convenience store assets. However, it has since pared some of those gains and traded back below $21.50.

Selling assets may help boost Kroger’s balance sheets and streamline its operations in the near term, but long-term investors likely need to see a more comprehensive plan for dealing with Amazon. Pricing cuts are already beginning to eat into Kroger’s margins as the company fights to maintain its growth projections.

Wednesday’s big bounce gives Kroger bulls optimism that the $19.69 level will hold as support for now. The stock has now bounced three times at around $20 going back to June, and dips below $20 have been short and sweet. However, for Kroger to demonstrate real bullish momentum, spikes like Wednesday’s move need to trigger buying, not more selling.

Joel Elconin contributed to this story.

Related Link: FedEx, UPS Shrug Off Amazon Challenge...For Now

______

Image Credit: By Tom Woodward from Richmond, VA, US - loaf N jugUploaded by xnatedawgx, CC BY-SA 2.0, Via Wikimedia Commons