The grocery giant is showing early signs of a turnaround, but investors sold the stock because the most important part of the strategy is still under wraps.
If you just glanced at Kroger (KR)'s first-quarter numbers, you might be scratching your head. Identical sales grew 1.0%, online sales popped 19%, and the company reaffirmed its full-year guidance. So why did the stock drop 8.4% on June 18? The headline numbers were fine; that was never the issue.
The reason for the initial drop was that Kroger's new CEO, Greg Foran, used the first-quarter earnings call to present investors with the unvarnished truth: operating costs are growing faster than sales, margins are under pressure, and the cure is still being formulated. What unsettled the market was a problem laid bare alongside a plan promised for later, and investors have clearly decided a promise isn't enough.
In the week since, the stock hasn't recovered; it has drifted to around $58, near its 52-week low, as ****** ysts from Citi, Morgan Stanley, Wells Fargo, and others trimmed their price targets following the report. The market, it seems, wants to see the fix, not just hear that one is coming.
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