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Grocery Stocks Sink After Kroger (KR) Reports Q2 Earnings

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Shares of Kroger (KR - Free Report) plummeted after the company reported its second-quarter earnings on Friday morning. The grocery store giant’s big profit decline helped send much of the rest of the grocery industry down as well.

Kroger’s second-quarter revenues jumped 3.8% to $27.6 billion, which beat the Zacks Consensus Estimate of $27.4 billion. The company’s same-store sales, excluding Kroger's fuel centers, gained 0.7%. However, Kroger’s profits sunk nearly 8% to $0.39 a share, which missed our estimate of $0.40 a share.

The biggest supermarket chain in the U.S. saw its margins shrink due to increased competition from other grocers, which forced Kroger to cut prices.

On Friday, shares of Kroger dropped by nearly 10% to hit a new 52-week intraday trading low of $20.41. Kroger’s stock price was already down almost 30% over the last year. But the grocery chain remained positive, at least in the short-term, despite the increased pressure.

"As our business continues to improve, we remain committed to delivering on our guidance in 2017 and believe we have the ability to grow identical supermarket sales and market share in 2018,” Kroger CEO Rodney McMullen said in a statement.

The bad news for Kroger is that it began slashing prices well before Amazon’s (AMZN - Free Report) acquisition of Whole Foods became official. And the e-commerce giant’s presence in the grocery industry might have contributed to Kroger’s decision to stop providing long-term guidance.

“In this dynamic operating environment, we will continue to provide annual guidance as we have done for many years but will no longer provide longer-term guidance,” McMullen continued.

Grocery Industry

Amazon wasted little time lowering prices at Whole Foods, on everything from milk and cheese to meat, fish, and eggs.

On top of cheaper groceries, Amazon’s move into the industry threatens to shake up how people shop in general. The undisputed online retail king’s purchase of Whole Foods has the potential to shift grocery shoppers to online ordering and delivery much sooner than if they had moved into the sector on their own.

Kroger’s disappointing second-quarter results, along with the fear of increased competition from new players, helped send shares of Costco (COST - Free Report) down over 2% on Friday. Shares of Target (TGT - Free Report) , which has a substantial grocery business, dipped by 3.68%.

Shares of Casey's General Stores (CASY - Free Report) and Ingles Markets (IMKTA - Free Report) both fell by around 1.5%. Sprouts Farmers Market (SFM - Free Report) saw its stock price dip 2.1%

Weis Markets stock sunk 4.77%, while shares of Smart & Final Stores (SFS - Free Report) and SUPERVALU Inc. (SVU - Free Report) plummeted 8.61% and 7.30%, respectively.

Bottom Line

Not all grocery store chains need to fear in the near-term, but if the industry does not begin to make changes to its business model soon, Amazon’s Whole Foods deal could make life a whole lot harder. 

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