Kroger (KR) is down 3.5% after reporting disappointing fiscal fourth quarter results this morning.
The nation's largest pure-play public supermarket beat estimates on the top and bottom line, however the most important metric for any retailer is comparable store sales. Kroger calls them identical supermarket sales, and the metric excludes sales of gasoline.
Kroger has missed identical supermarket sales estimates five quarters in a row. Fourth quarter ID sales fell 0.7% versus ‘slightly positive' guidance and 3.7% growth last year.
Deflation continues to weigh sales. Inflation-adjusted ID sales were positive in the fourth quarter. Deflation excluding fuel persisted at 1.3% compared to 1.1% in the third quarter. During the quarter, Kroger saw a decline in pharmacy inflation, an acceleration in produce deflation, and a slowing in grocery deflation.
Investors are disappointed after management said deflation had likely bottomed last quarter. The company anticipates the operating environment in the first half of 2017 to be similar to the second half of 2016. Results in the second half of 2017 should show improvement as Kroger cycles softer results.
Kroger guided for ID sales flat to up 1% this year, slightly below Street estimates. Earnings guidance was in-line with consensus after management tempered expectations last quarter.
Kroger remains committed to delivering long-term net earnings per diluted share growth rate target of 8 -- 11%, plus a growing dividend.
The stock is testing support near the 31 level this afternoon.
Kroger has a ~$29 billion market cap and trades at ~14x earnings.