What the heck was Kroger's (KR) stock doing at $31 at the end of January? How could it have traveled from $21 at the end of October almost in a straight line?
These are the questions that you have to ask yourself after yesterday's dispiriting conference call where the stock of the nation's largest supermarket chain was just crushed, obliterated, falling from $26 to $22 after already slipping from $28 to $26 the day before.
It was a brutal ride down after having rallied on, well you tell me, from that low in October up to the peak before it began to set in that the same problems Kroger experienced at the bottom had only intensified between quarters, where the already razor thin supermarket margins fell 31 basis points with the company indicating that the margins could worsen before they get better.
How could they now when the CEO, Rodney McMullen said "we're not going to lose on price."
For the longest time Kroger seemed to have the run of the joint, with costs seemingly under control with its lucrative private label brands picking up share, rising to 29% of units and its remarkable Simple Truth natural and organic line brand garnering $2 billion in sales in just five years. It's Restock Kroger plan to create shareholder value seemed totally on track.
But it's all come tumbling down for the second time in 10 months and I think this time the analysts have pretty much had it with the Cincinnati chain's promises and what amounts to bizarre faith based investing. Or to give you the line uttered by CFO John Michael Schlotman that may have single-handedly destroyed the thesis that had carried the stock so much higher after the comeuppance from June of last year: "Our financial results continue to be pressured by inefficient health care and pension costs that some of our competitors do not face."
That tends to happen when Amazon (AMZN) moves into your space and you have to spend a fortune re-tooling your stores for buying on line and picking up or delivery or whatever gets the product to your customers while having among the highest, unionized costs in the business.
For the life of me I do not know why anyone thought that with the entry of Lidl and Aldi on top of Amazon's Whole Foods, the low priced Costco (COST) , and of course Walmart (WMT) and Target (TGT) , that Kroger's margins would improve.
But the analysts and the investors seemed genuinely off guard about how Kroger had to take a chunk of its tax savings and turn them over to employees on top of the costs needed to compete in the new world.
The open rebellion about margins on the call also stunned me. What did those who follow the company think would happen to this old-line company when all of these new competitors came in?
Why do I say faith-based investing? Because the conference call was so upbeat you would have thought that Kroger was winning some war that it seemed like it had already lost.
That's the only explanation I have for the sign-off by McMullen at the end of the call: "with St. Patrick's Day and a pretty big basketball tournament right around the corner, March is always fun and a fabulous celebration time of the year. I encourage you to take advantage of the opportunities," he went on "we have to uplift our customers and each other every day and to help our customers have great celebrations, great parties and a great experience in our stores and through our digital experience."
Great experience per share? March fun per share? You think these analysts give a darn about that? You think they are thinking about March Madness.
I will tell you what they are thinking about "McMullen madness" as in "is that how you are going to compete in the new world of vicious, cheap competitors including Amazon? If that's the case, give me another stock, right now before the tourney begins.
After this quarter I say enter into this sphere with caution, fear and contempt. It's just too tough to compete. I'd rather invest in Cincinnati's own Xavier, take them to go deep in the tourney, than go with these guys. If I want ruinous competition I'll check out the bracketology this weekend. But the stock of the Cincinnati grocery giant? Let me just take a pass.