Kroger Co’s (NYSE:KR) numbers are very impressive. It’s the largest grocery store chain in the U.S., which breaks down to about 2,800 grocery stores, 1,400 fuel centers, 785 convenience stores and 350 cheese shops in 35 states and the District of Columbia. Last year, it did $115 billion in sales.
To keep this operation going is no simple task. The grocery business is a notoriously low-margin business. Given the energy costs associated with keep food frozen or fresh or refrigerated properly, as well as having big, well-lit stores that are constantly being stocked, it’s hard to imagine how smaller chains can even exist nowadays without the economies of scale the big stores — Safeway Inc (NYSE:SWY) or Publix Super Markets Inc (OTCMKTS:PUSH) for example — have.
But the biggest number that has hit KR prices recently is a fraction: -0.7%. That is the same-store sales growth reported earlier this month. Since the report, the stock has lost about 12%.
KR Stock in Trouble?
Analysts have been concerned that increasing competition and newer competitors like Wal-Mart Stores Inc (NYSE:WMT) and Target Corporation (NYSE:TGT) are going to start to hurt KR’s business. And this number is a reflection that their fears are now being realized.
Another concern has been the stock’s 22% slide over the past 12 months.
But the former concern over market share has had the latter effect on the stock. These are not observational concerns, the performance simply demonstrates the abstract concern.
It also has been hurt by investors either looking for bigger dividend yields or sexier growth stocks.
The fact is, the grocery store sector has been very competitive (if unsexy) for more than two decades, and KR stock has been a winner over this major transition, not a loser. And Kroger is not sitting around, waiting for its competitors to set the challenges for it. KR stock is an innovator and it’s continuing to improve its brands as well as its market share.
Along with that -0.7% number, there were also some very positive signs in the Q4 numbers. For example, total sales increased 5.5%, above analysts’ expectations. Profits for the quarter were also above expectations.
Another reason the grocery chain’s same store sales aren’t as impressive as you may expect is, they took 35 of their best performing stores out of their list as they upgrade and renovate them. This has been going on for the past 12 months. And oddly enough, it was expected to hit same store sales by — drumroll please — 0.7%.
The point is, there is plenty to like about KR stock, and right now, it’s a bargain for long-term investors looking for a rock-solid company that provides a safe, if uncompelling, dividend.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.