I Would Rather
I like to write. Sometimes it seems like I write all day. In fact, sometimes I will write to you good folks about a trade idea that runs through my head, and then find out later... usually only when it was a good idea (never a bad one), that somehow, I never put the trade on. Sometimes the brain thinks that something has been done just because it has explained the material in detail. This doesn't happen often, thankfully. Frustrating when it does. There is one name running among this morning's (Thursday) headlines that I won't have to remember to buy myself.... because I am not going to detail a long side trade idea. That stock goes by the name of Kroger (KR) .
Kroger reported the firm's fourth quarter financial results before the opening bell at 11 Wall Street. KR missed expectations for earnings, whether one adheres to GAAP standards or not. The firm also missed industry projections for revenue generation on a decline year over year of -9.5%. Ugly. How rough is it out there? Gross margin contracted but that was not the real story. The real story was in operating margin. Expectations had placed this line item at 2.4% growth, which would have been up from 1.8% for the same period a year ago. What shareholders got was a different story entirely... 1.4%. Ugly. Forward guidance... below consensus. What did you expect?
What I am trying to tell you is that I would probably have more fun simply placing 25 bucks in a garbage can and lighting it on fire, than I would in purchasing one share of KR and then watching my investment.
Listen, groceries are a tough, competitive business. Margins are never really good across the space. Home delivery has served to make the business more demanding on the supply side, while also increasing expenses. To be honest, if one really wants to be long the brick and mortar grocery business, go buy Walmart (WMT) , a name I'm long... or go buy Target (TGT) , that name is hot. At least with those two, the exposure is there both in their growing e-commerce business lines, as well as in tremendous scale across the broader spectrum of traditional retail. One thing I don't really understand is why another long term holding of mine... Amazon (AMZN) wants into the grocery business so bad. Perhaps I'm wrong. That said, I would rather Amazon focus on the public cloud, and on their advertising businesses. Their e-commerce site is the meat, but AWS, and that ad biz... that's the gravy.
Kroger's balance sheet, at least from my vantage point, remains problematic. The firm runs with cash and equivalents of $411 million, and less than $1.6 billion in receivables. Inventories seem to run below $7 billion in value. Now, those numbers are up against accounts payable of more than $6 billion, long-term debt of more than $12 billion, and liabilities labeled as "other" that total more than $3.7 billion. The Current ration is well, well below the crucial "one" level. Like I said... Ugly.
Sold !!!!!! You don't need a chart for this one.