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Kroger's Guidance Cut Looks Modest Relative To Peers' Outlooks

Kroger Company The NYSE:KR, Sprouts Farmers Markets NASDAQ:SFM - Kroger's Guidance Cut Looks Modest Relative To Peers' Outlooks

Shareholders never want to get news that their company is lowering its forward guidance, but Kroger Co KR 1.71% shareholders can at least tell themselves “it could have been worse.” Kroger has officially lowered its fiscal 2016 EPS guidance from $2.19–$2.28 to $2.10–2.20. The move represents about a 3.8 percent reduction.

But Kroger isn’t the only grocer that has been dialing back expectations in recent weeks. Sprouts Farmers Market Inc SFM 0.92% has lowered its Q3 EPS guidance from $0.94 to $0.83–$0.86, a roughly 9.5 percent reduction. SUPERVALU INC. SVU 0.74% management said on September 8 they now expect full-year EBITDA to come in about 5.0 percent below last year’s level.

BMO Capital Markets analyst Kelly Bania believes Kroger’s modest guidance cut is a sign of relative strength among peers.

“Compared to deeper earnings cuts in recent weeks by peers in light of accelerating deflation (KR product cost deflation of 1.25 prcent excluding pharmacy in F2Q17 or <1 percent including pharmacy), KR cut F17 EPS guidance by 2–3 percent at the mid-point with full-year IDs expected to be lower by 1.1–1.7 percent, suggesting minimal GM percentage pressure in our view,” Bania explained.

BMO remains cautious in the current deflationary environment and is currently on the sidelines when it comes to Kroger’s stock. The firm has a Market Perform rating on Kroger and a $35 price target for the stock.

At time of writing, Kroger was down 2.25 percent at $30.80.

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Sep 2016SunTrust Robinson HumphreyMaintainsNeutral
Sep 2016Deutsche BankMaintainsBuy
Sep 2016Argus ResearchMaintainsBuy

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