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Why Did Kroger (KR) Stock Gain Today?

Ryan McQueeney
Shares of Kroger (KR) were up more than 3.5% in morning trading Wednesday after the grocery chain reaffirmed its 2017 forecast and said that it was considering the sale of its convenience store business.

Shares of Kroger KR were up more than 3.5% in morning trading Wednesday after the grocery chain reaffirmed its 2017 forecast and said that it was considering the sale of its convenience store business.

For fiscal 2017, Kroger projects adjusted earnings to fall in the range of $2 per share to $2.05 per share. The company expects identical supermarket sales, excluding fuel, to improve by 0.5% to 1%.

In a prepared statement, Kroger management also confirmed that the company is working with Goldman Sachs GS to explore strategic alternatives, one of which would be to offload its 780-store, 18-state convenience store portfolio.

“Considering the current premium multiples for convenience stores, we feel it is our obligation as a management team to undertake a review,” CFO Mike Schlotman said.

On top of its core supermarkets and convenience stores, Kroger operates several retail health clinics, jewelry stores, and pharmacies.

Kroger is also detailing its three-year goals at this week’s annual investor meeting. Dubbed the “Restock” plan, Kroger is looking to couple cost savings in certain business segments with roughly $9 billion in capital investments. The company hopes that the plan will generate over $4 billion in free cash flow over the next three years.

“We have the scale, the data, the physical assets and human connection to win,” said CEO Rodney McMullen. “Restock Kroger builds on our strengths and strategically repositions Kroger to accelerate our customer-centered efforts in order to create shareholder value.”

One of Kroger’s primary goals for Restock is to improve its in-store experience. As brick-and-mortar retailers continue to adapt to e-commerce, especially recently in the grocery space, a key strategy has been to focus on bettering the traditional shopping environment.

So far, it looks like Kroger has some interesting ideas on this front. The company intends on expanding its “Scan, Bag, Go” program, which is being piloted at 20 stores, to nearly 400 locations next year. “Scan, Bag, Go” allows shoppers to check out items with a handheld scanner as they walk around the store, a concept that is eerily reminiscent of Amazon’s AMZN Amazon Go experiment. Kroger also plans to invest nearly $500 million in better pay and training for its store employees.

Today’s gain comes on the back of the news that fellow supermarket chain Walmart WMT was reaffirming its own guidance for fiscal 2018 and updating its sales goals for fiscal 2019. Despite a brutal pricing war involving Amazon’s Whole Foods, big box retailers like Walmart and Target TGT, and discount chains like Aldi, some grocery giants are clearly finding success.

Currently, Kroger is a Zacks Rank #3 (Hold) and sports an “A” grade for Value in our Style Scores system. The company’s P/E ratio of 10.30 and P/S ratio of 0.15 present a discount to the industry and market averages.

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