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Kroger Misses 3rd-Quarter Earnings and Revenue Expectations

Kroger Co. (NYSE:KR) released its third-quarter results on Dec. 5 before the market opened. The company missed expectations for both earnings and revenue courtesy of solid competition from retail behemoths like Wal-Mart Inc. (NYSE:WMT) and Amazon.com Inc. (NASDAQ:AMZN).

Earnings highlights

The U.S. supermarket chain recorded adjusted earnings of 47 cents per share for the quarter, just shy of expectations of 48 cents per share. Revenue of $28 billion was up from $27.8 billion reported in the prior-year quarter but fell short of analyst expectations of $28.1 billion.

Comparable store sales, barring fuel, jumped 2.5%, which exceeded the 2.25% growth analysts had anticipated. Digital sales grew 21% year over year. The company generated $254 million in operating profit.

Kroger's chairman and CEO Rodney McMullen commented on the company's performance:

"Kroger's customer obsession and focus on operational excellence continued to generate positive results in the third quarter. Identical sales were the strongest since we started Restock Kroger and gross margin rate, excluding fuel and pharmacy, improved slightly in the quarter. At the same time, we continued to reduce costs as a percentage of sales."

Kroger's partnership with ClusterTruck

Kroger intends to partner with Indianapolis, Minnesota-based food delivery service provider ClusterTruck in order to deliver fresh foods through dark kitchens (aka delivery-only restaurants) to customers without charging a delivery fee.

As of Dec. 6, Kroger plans to launch its Kroger Delivery Kitchen service in Carmel, Indiana and Indianapolis and Columbus, Ohio. Customers will get their meals just minutes after they have placed the order from the dark kitchens.

Kroger's chief information officer Yael Cosset said:

"The way our customers order and receive meals is evolving, and ClusterTruck's innovative culinary and digital design is cracking the code for the future of profitable meal delivery. Kroger is leveraging ClusterTruck's advanced technology to ensure our customers don't have to sacrifice quality and value for convenience when it comes to meal delivery. Kroger Delivery Kitchen Powered by ClusterTruck will allow our customers to access restaurant-quality fresh and delicious meals like never before and without having to pay excessive service or delivery fees."

Financial forecast

For fiscal 2019, Kroger is guiding for adjusted earnings between $2.15 and $2.25 per share, while same-store sales is projected to grow between 2% and 2.25%.

While the company predicts operating profit to be around $2.4 billion to $2.5 billion, it estimates capital spending to be between $3 billion and $3.2 billion.

Disclosure: I do not hold any positions in the stocks mentioned.

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This article first appeared on GuruFocus.