Kroger Co., the largest U.S. supermarket chain, tempered its forecasts for the remainder of the year amid pressure from falling food prices and intense competition from grocery sellers ranging from Wal-Mart to Amazon. The exploding number of farmer’s markets and growing market-style shops are also making their mark on the giant chain.
Shares in the company, whose brands also include Ralphs and Fred Meyer, were up 0.9 percent to $32.58 in midday trading after that revised forecast essentially matched analysts’ estimate of $2.13 per share for the fiscal year that ends Jan. 30, according to Thomson Reuters.
Kroger is not only known as being the largest in their supermarket category, but among the industry’s best operators. Although they reported slightly better-than-expected third-quarter revenue, profit in line with Wall Street expectations, and market share gains, the chain’s challenges continue. “Persistent and increasing deflation” is expected to weigh on store sales in the fourth quarter, Chief Financial Officer Michael Schlotman said on a conference call with an industry expert analyst.
Food prices in the United States have been dropping due to low oil and grain prices. The food-at-home consumer price index for the third quarter was 1.9 percent lower than a year ago with milk, eggs, beef, veal, pork and poultry posting the largest declines. Most grocers are passing those lower prices on to shoppers and restaurants, which have been raising menu prices to offset higher labor costs.
Kroger’s net income attributable to the company fell to $391 million, or 41 cents per share, in the third quarter ended Nov. 5, from $428 million, or 43 cents per share, a year earlier. Excluding certain items, the company earned 41 cents per share, matching analysts’ estimate. Net sales rose 5.9 percent to $26.56 billion, while analysts on average had expected $26.34 billion.
Kroger, whose stock has lost more than a fifth of its value this year, said it expects the current operating environment to continue in the first half of 2017. “The extent to which the grocery market has shifted from an environment of modest inflation to one of deflation and tough price competition is evident in Kroger’s numbers,” said Neil Saunders, chief executive of research firm Conlumino. Increased pressure for supermarkets to carry low-cost organic foods, and local fare, also prove challenging.