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Food Deflation

15 June 2017 by lberuti

When the company reported its first quarter results today, KR ( Kroger Co ) matched analysts’ expectations in terms of earnings. They even slightly beat revenue forecasts. But investors rewarded them by sending the shares almost 20% down and the company’s 5-year risk premium 12bps wider at 84bps, as KR also cut their full year EPS guidance 10%, from between $2.21 and $2.25 per share to between $2 and $2.05 per share. In recent times, lower food prices have brought headaches to grocery stores. In order to boost customer traffic, they had to regularly offer steep discounts. While a boon for consumers, price wars have weighted on profit margins. And competition is actually about to get fiercer when the German discount chain Lidl will open its first US stores in the next coming days. Famous in Europe for their own label products, they are about to take the fight to the US. A tough trade will only get tougher.