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Kroger (KR) Hits 52-Week Low: What's Pulling it Down?

AEO URBN PLCE KR

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Shares of The Kroger Co. (KR - Free Report) dipped 1.2% yesterday and touched a new 52-week low of $30.06. Since Sep 9, when Kroger lowered its fiscal 2016 guidance, the company’s shares have dropped 4.5%.

A deflationary environment and uncertain economic conditions are making things tough for Kroger. As a result, the company trimmed its fiscal 2016 earnings projection to the band of $2.10 to $2.20 per share from its previous projection of $2.19–$2.28.

Following Kroger’s dull outlook, the Zacks Consensus Estimate witnessed a downtrend. Analysts polled by Zacks are now less optimistic on the stock’s future performance. Over the past 30 days, the Zacks Consensus Estimate of $2.15 and $2.35 for fiscal 2016 and fiscal 2017 has declined 3.2% and 2.9%, respectively. Additionally, the Zacks Consensus Estimate for the third quarter dropped 6.7% to 42 cents over the same time frame.

Kroger's grocery business is highly competitive and fragmented, and the company faces intense competition from big players like Safeway and Supervalu, other conventional retailers, and specialty gourmet retailers. The competition is with respect to price, store expansion, as well as promotional activities to drive traffic. This may dent Kroger's sales and margins.

Further, Kroger ended second-quarter fiscal 2016 with total debt of $12,420 million, exhibiting a high debt-to-capitalization ratio of approximately 65%. This could adversely affect the company’s credit worthiness and make it more susceptible to macroeconomic factors and competitive pressures.

On the brighter side, this Zacks Rank #3 (Hold) company’s dominant position among the nation’s largest grocery retailers enables it to sustain growth, expand its store base and boost market share. We believe there are enormous opportunities to enhance identical supermarket sales, alleviate gross margin pressure and improve operating margin.

Stocks to Consider

Better-ranked stocks worth considering in the retail sector include American Eagle Outfitters, Inc. (AEO - Free Report) , The Children's Place, Inc. (PLCE - Free Report) and Urban Outfitters Inc. (URBN - Free Report) . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

American Eagle Outfitters, which has surpassed the Zacks Consensus Estimate in the trailing four quarters with an average earnings beat of 9.3%, currently has a long-term earnings growth rate of 11.8%.

Children's Place, whose share place has gained more than 40% in the past one year, currently has a long-term earnings growth rate of 10.3%.

Urban Outfitters' share price has witnessed robust growth of nearly 54% year to date and has an impressive long-term earnings growth rate of 15%.

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