The Kroger: Tough Competition Is Pressuring EPS

Analysts at Barclays Capital have maintained their “1-Overweight” rating on The Kroger Co. (NYSE: KR), while adjusting their estimates for the company. It has reduced the price target on KR’s shares to $26 from $28, citing the tough external environment.

KR reported 3Q10 EPS of $0.27, adjusted for a one-time goodwill impairment charge of $1.1B, well below the $0.36 expectation and last year’s $0.39. Reported EPS was a loss of $1.35. Results were pressured by competition in most markets, deflation, and very cautious consumer shopping behavior.

The firm says “KR is the best positioned of the large supermarket chains to deal with the current economic and competition, in our view; yet it, too, is being hurt by the tough external environment. Although some observers think the end of deflation will mark an earnings turning point, we think the industry may need to see markedly better employment for competition to ease. This most likely means that results do not improve for some time, and the stock is likely to remain in a narrow trading range.”

They are also lowering 4Q10 EPS estimates to $0.33 from $0.47, FY10 EPS to $1.65 from $1.88, and FY11 EPS to $1.75 from $2.06 to reflect continuing deflation and competitive environment that remains challenging for several more quarters.

Today, shares of KR are trading at $19.97, down 0.79%.