Why Is Kroger Down 26% In 5 Days?

A glimpse of The Kroger Company’s (NYSE:KR) share price movement reveals that it has plunged over 26% in the past five days. In the past one month, the stock has nosedived roughly 24.6% compared with the Zacks categorized Retail-Supermarkets industry that has gained 11.8%.

Further, Momentum Score of “C” clearly indicates that the stock is likely to spiral downward in the coming days. Additionally, a downtrend in the Zacks Consensus Estimate in the past seven days also echoes the same sentiment.

So what is behind the debacle? We have tried to ascertain major reasons that can be held responsible for this Zacks Rank # 5 (Strong Sell) stock’s dismal show in the bourses. You can see the complete list of today’s Zacks #1 Rank stocks here.

Declining Comps

Stiff competition, falling comps, volatility in food prices, aggressive promotional environment and waning store traffic are making things tough for Kroger. We noted that identical supermarket sales (excluding fuel center sales) had fallen 0.2% in first-quarter fiscal 2017, following a 0.7% decline in the final quarter of fiscal 2016.

This trend may be short lived, but is enough to impact the shares. Kroger envisions identical supermarket sales, excluding fuel, to be flat to up 1% in fiscal 2017.

Debt Burden

Apart from the aforementioned reasons, Kroger’s debt level may also elevate investors’ concern. The company ended first-quarter fiscal 2017 with a total debt of $13,444 million compared with $12,386 million in the year-ago period. As a result, interest expense rose 14.2% year over year in the quarter under review, following an increase of 11.5% and 16% in the fourth and third quarters of fiscal 2016, respectively.

We also noted that the company’s debt-to-equity ratio, which represents the proportion of debt and equity it is deploying to finance its assets, is displaying an increasing trend – 1.88, 2.09, 2.10 and 2.19 in the second, third and fourth quarters of fiscal 2016 and first-quarter of fiscal 2017, respectively.

Waning Bottom Line

This is evident from first-quarter fiscal 2017 results, wherein the bottom line continued to decline year over year for the third straight quarter, despite an increase in the top line fueled by recent buyouts. After falling 4.7% and 7% in the third and fourth quarters of fiscal 2016, respectively, the bottom line plunged 18.3% in the first quarter of fiscal 2017. (Read: Kroger Q1 Earnings Beat but Decline Y/Y, Outlook Cut)

Subsequently, Kroger trimmed its forecast and now envisions fiscal 2017 earnings in the band of $2.00–$2.05 per share down from earlier projection of $2.21–$2.25. As a result, analysts polled by Zacks have also tweaked their estimates. In the past seven days, the Zacks Consensus Estimate of $2.00 and $2.11 for fiscal 2017 and 2018 has declined 22 cents each. Moreover, for the second quarter the same has dropped 6 cents to 42 cents.

Whole Foods’ Buyout News Sends Ripples

Kroger’s shares came under immense pressure, after the news of Whole Foods Market, Inc.’s (NASDAQ:WFM) buyout by Amazon.com Inc. (NASDAQ:AMZN) spread through the market. The deal may help firm Whole Foods’ position against Kroger and Wal-Mart Stores Inc. (NYSE:WMT) . Analysts are looking at this mammoth acquisition as an amalgamation between online marketplace and physical stores that could bring a massive change in the retail industry going forward. (Read: Whole Foods' Buyout by Amazon, Worries Wal-Mart & Others)

In order to stay in the race, Kroger, has to revisit its strategies and prepare itself for more aggressive price war ahead.

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