Kroger is finding its stride, even as competition heats up in the cutthroat grocery industry.
Shares of the grocer, battered for months by pessimism after Amazon pushed into the fiercely competitive industry, jumped as much as 14% - the most in almost 25 years - after the company posted same-store sales that beat estimates. Kroger also sees sales growth continuing in the fourth quarter.
“You’re seeing their strategy start to pay dividends,” said Jennifer Bartashus, an analyst at Bloomberg Intelligence. “The stock has really been impacted by the perception of other companies, rather than the performance of Kroger itself.”
The grocery industry has long been known for razor-thin margins and tough competition. That pressure has ramped up since Amazon took over Whole Foods Market, a deal that cast doubt on traditional grocers’ ability to fend off competition.
Kroger has insisted that it has the scale and industry expertise to boost sales, even as more customers buy food outside of brick-and-mortar stores. The company is also grappling with a resurgent Walmart and the rise of discount chains that are undercutting on price.
Sales Growth
Even so, Kroger’s same-store sales rose 1.1% in the third quarter, its second consecutive quarter of growth. Analysts had estimated 0.9%.
The company said it expects the key metric to rise even more in the fourth quarter. Kroger had posted two straight quarters of negative same-store sales earlier this year, its worst slump in at least 13 years.
The shares jumped to as high as $27.70 - erasing a good chunk of the stock’s 29% decline this year through the close of trading on Wednesday.
“We remain confident in our ability to continue to grow identical supermarket store sales and market share for the balance of the year and in 2018,” Chief Executive Officer Rodney McMullen said in a statement. He added the company is expanding its e-commerce operations and lowering prices.
As more customers buy food online, e-commerce will be a key area of growth for the grocery industry, according to Bartashus. Kroger’s digital revenue more than doubled in the quarter, and while the rise came off of a small base, it shows the company has a chance to compete with Amazon and Walmart.
“That’s where you’ll see a lion share of the growth,” she said. “The results show Kroger is poised to take a good share of that.”
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