Kroger Stands Its Ground In Price War With Wal-Mart, But Do Market Share Gains Offset Declining Comps?

Deutsche Bank’s Shane Higgins continues to believe Kroger Co KR is well positioned to drive market share gains as well as EPS growth over time, given the numerous advantages the company has.

The analyst maintains a Buy rating on the company, while lowering the price target from $39 to $35.

Results And Guidance

Kroger reported its EPS for Q4 at $0.53, in line with the estimate and marginally ahead of consensus.

However, non-fuel identical store (ID) sales decline 0.7 percent, coming in below expectations.

Related Link: Kroger's CFO Talks Food Deflation

The first-quarter guidance was also below the consensus forecasts.

“Deflation in 4Q was sequentially worse than 3Q, and competition was more intense – confirming what many investors already knew, which was that Wal-Mart Stores Inc WMT and others were accelerating price investments and improving the shopping experience,” Higgins mentioned.

In response, Kroger stepped up price investments and promotions, which adversely affected gross margins.

Intensifying Competition

The analyst expressed concern regarding intensifying competition, stating that the guidance for a robust rebound in second half, following the very weak Q1 guidance, highlighted the above average uncertainty being faced by the business at present.

“KR remains fully committed to its Customer 1st strategy and will continue taking costs out and driving efficiencies to reinvest in its four keys (prices, people, products, and shopping experience), which should drive loyalty and sales,” Higgins added.

At Last Check

• Shares of Kroger Co were down 2.48 percent at $29.91.
• Wal-Mart shares were down 0.95 percent at $70.09.