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Kroger (KR) to Divest Turkey Hill & Focus on Core Operations

Zacks Equity Research

The Kroger Co. KR has inked a deal with an affiliate of Peak Rock Capital for the sale of its Turkey Hill business. Prior to this, the company announced plans to divest Turkey Hill in August 2018. The financial details of the deal, which is expected to close during the first quarter of fiscal 2019, remain undisclosed.

Per the deal, Turkey Hill will continue to operate from its Conestoga, PA, facility, under its own brand name. Also, the division will retain its employees of about 800 full-time, part-time and seasonal associates. Further, the net proceeds from the deal will be utilized to reduce Kroger’s debt level.

Turkey Hill, which is part of Kroger’s Our Brands (owned brands), is one of the company’s popular ice-cream brands. Apart from ice creams, Turkey Hill produces a complete line of popular iced teas, fruit drinks, milk and other frozen desserts.

This move is in sync with the company’s plans to narrow its non-grocery footprint and make investments to expand its grocery offerings and e-commerce presence. In this regard, the company divested its convenience stores to U.K.-based EG Group in April 2018.

The company is aggressively working toward enriching customers’ shopping experience via innovations and enhancement of e-commerce capabilities. Keeping in these lines, Kroger partnered with British online grocery delivery company, Ocado and expanded its Home Chef Express meal kits nationwide.

Apart from these, the company started using Nuro’s fully autonomous, driverless vehicles for grocery delivery services. Additionally, it recently launched Kroger Pay, a mobile payment app. The company also partnered with Microsoft to use Azure, its most preferred cloud platform, for Retail as a Service (RaaS) — a Kroger solution. These above-mentioned strategies are in response to stiff competition from the company’s rivals, Walmart WMT, Target TGT and Amazon AMZN that are ramping up in the grocery delivery space.

We believe that such initiatives will help provide cushion to this Zacks Rank #3 (Hold) stock that has declined 11.2% in the past three months against the industry’s growth of 12.4%. The stock came under pressure following the company’s fourth-quarter fiscal 2018 results, wherein the bottom line not only missed the Zacks Consensus Estimate but also declined year over year. Although total sales topped the consensus mark, it dropped from the year-ago quarter’s figure. Management also provided muted earnings view for fiscal 2019. (Read: Kroger's Q4 Earnings Miss Estimates, FY19 View Soft). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.



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