Kroger (KR) stock is looking rotten after reporting earnings for the February 2-ended fourth quarter.
The Cincinnati-based grocer's stock is being eaten into after reporting a miss on earnings per share, coming in at $0.48 against a $0.52 consensus, and a big miss on revenue that came in $309 million light on estimates of $28.4 billion. The misses are made more significant as the analyst consensus was already tempered, with both revenue and earnings per share numbers representing year over year declines.
The release states total sales decreased 9.5% to $28.1 billion in the fourth quarter compared to $31.0 billion for the same period last year, leading to a 1.2% year over year decline in sales from 2017 to 2018.
Additionally, operating margin in the full fiscal year decreased 68 basis points compared to the prior year and gross margin, excluding fuel sales, plummeted.
"Although the reported gross margin was above the Street, this was likely because of strength in fuel: the FIFO gross margin ex-fuel was down 93 basis points year over year, the biggest decline since 2009," JP Morgan analyst Ken Goldman pointed out. "This suggests deteriorating core supermarket fundamentals, in our view."
Optimism in the outlook was elusive as well, as the company said it sees Kroger full year earnings in the range of $2.15 to $2.25 per share, lower than the $2.26 estimate from Refinitiv. As a result, much of the management commentary laid out targets for 2020.
"Kroger solidly delivered on what we set out to do in 2018, which was an investment year that laid the groundwork for us to achieve our 2020 Restock Kroger targets including financials," CEO Rodney McMullen said in a statement. "We reached our FIFO operating profit goal and finished the year with sales and business momentum. We have a clear path to achieve $400 million in incremental FIFO operating profit growth and $6.5 billion in cumulative Restock cash flow by the end of 2020."
The long-standing concern about the company has been the incursion by Amazon (AMZN) into the grocery business, which threatens the company's crown in brick and mortar grocery, aside from its online grocery business that already competes for the company's sales.
Interestingly enough, e-commerce sales were a rare bright spot in the earnings release, marking 58% growth year over year. The company also said it has expanded Pickup or Delivery to reach 91% of Kroger-shopping households.
The company has embarked upon partnerships with Microsoft (MSFT) , Nuro Robotics, and UK-based online grocery platform Ocado to continue expanding the technology drive, suggesting it realizes its importance and will continue to invest.
For now, it appears the lone bright spot is not enough to keep shares from cratering, as the grocer's stock is set for its lowest open in about nine months.
An earnings call is scheduled for 10 a.m. ET and is available here.