Kroger sales, earnings miss as competition hurts

(Reuters) - U.S. supermarket chain Kroger Co KR.N missed Wall Street estimates for quarterly sales and profit on Thursday, hurt by stiff competition from industry stalwarts including Walmart Inc WMT.N and Inc AMZN.O.

FILE PHOTO: A logo of Kroger is displayed on a monitor above the floor of the New York Stock Exchange shortly after the opening bell in New York, U.S., December 5, 2017. REUTERS/Lucas Jackson

Kroger’s shares fell nearly 3% after the company said it wrote down its stake in Lucky’s Market, a specialty grocery store chain that focuses on natural, organic and locally grown products.

Cincinnati, Ohio-based Kroger has made heavy investments as part of its ‘Restock Kroger’ transformation program to grow online sales, improve delivery and modernize stores to gain market share over rivals.

Three years ago, Kroger invested in Lucky’s Market paying attention to the growing demand for organic products but said on Thursday the decision to divest its stake in the Colorado-based company came as a part of its focus on improving return on investments.

“The amount of investment that it would take for Lucky’s to be a meaningful contributor to Kroger overall and the efforts that it would take, we just didn’t think it created a good return for the investments,” Chief Executive Officer Rodney McMullen said on a post-earnings call.

“So it was really driven by narrowing our focus.”

The divestiture led to a non-cash impairment charge of $238 million in the third quarter.

Kroger, the largest supermarket chain in the United States, has also invested in expensive partnerships with Microsoft Corp MSFT.O and online grocer Ocado OCDO.L to modernize stores and improve delivery.

Still, digital sales in the third quarter rose only 21%, compared with the 31% increase in the second quarter.

Core gross margin, excluding fuel, fell 24 basis points, the company said, blaming lower margins in the pharmacy business.

J.P. Morgan analyst Ken Goldman said the margin numbers were surprisingly disappointing, given easy comparisons, a less competitive pricing environment and possible help from hurricanes.

Net sales rose marginally to $27.97 billion in the quarter ended Nov. 9, lower than analysts’ estimate of $28.18 billion, according to IBES data from Refinitiv.

Excluding one-time items, the company earned 47 cents per share, 2 cents lower than expectations.

Sales at company stores open for more than a year rose 2.5%, excluding the impact of fuel prices. Analysts had expected 2.33% growth.

Reporting by Nivedita Balu in Bengaluru; Editing by Maju Samuel