Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Grocery Wars

Is Kroger Losing Money?

America’s largest standalone grocer Kroger (NYSE: KR) is behaving disturbingly like a company that is losing money.

Kroger has been laying off pharmacists in some markets. The company laid off 93 pharmacists in Columbus, Ohio, and 300 in Dallas and Fort Worth news stories indicated. The grocer also ended supplier contracts with a batch of local floral supplier contractors, The Dallas Morning News reported.

Strangely enough, Kroger is hiring additional staff; 550 in the Dallas region and 11,000 nationwide, The Morning News reported. The company is adding staff to beef up its customer service efforts.

Kroger Partners with Ocado for Logistics

Kroger also bought around 6% of the British online grocer Ocado, a press release indicates. Kroger and Ocado entered into a partnership and subscription agreement that will bring Ocado’s Smart’s Platform to the United States. That will give Kroger access to Ocado’s robotics and digital technology capabilities.

In the deal, Kroger will develop three new automated warehouses in the US, the press release states. The fulfillment centers will deploy Ocado technology and presumably support delivery through Instacart, and Kroger’s existing services. The locations of the warehouses were no identified in the press release.

Kroger has an existing delivery partnership with Instacart and a delivery deal with Uber that will end on June 30, 2018, when Uber Rush shuts down. Kroger has also signed a deal with Penske Logistics to manage its warehouse in the Dallas-Fort Worth region, The Morning News reported.

It sounds as if Kroger needs help with the logistics of grocery delivery. Kroger is ramping up grocery delivery to counter aggressive delivery moves by Amazon (NASDAQ: AMZN) and Walmart (NYSE: WMT). Walmart plans to offer same-day grocery delivery to 40% of Americans and Amazon is planning same day Prime grocery delivery in Los Angeles County.

Is Kroger Making Money?

Such moves and the decision to sell off its convenience stores will make people wonder if Kroger is losing money. The answer provided by Stockrow data is no, Kroger is actually making money.

Kroger’s year-to-year to revenues grew by 12.39% between 1st Quarter 2017 and 1st Quarter 2018. The grocer reported quarterly revenues of $31.03 billion in 1st Quarter 2018 and $27.611 billion in 1st Quarter 2017. Kroger’s total revenues exceeded $120 billion for the first time in 2017; they rose to $122.662 billion on February 3, 2018. That was nearly $8 billion more than the $115.337 billion reported on January 28, 2017.

The growing revenues helped Kroger make a lot of revenue in the form of $44 million in operating income, $854 million in net income and a gross profit of $6.791 billion for 1st Quarter 2018. That led to an operating cash flow of $359 million, but a negative free cash flow of $313 million.

Because of its size, Kroger is making a lot of money but it has difficulty keeping the money. The company reported just $347 million in cash and short-term investments on February 3, 2018.

Kroger needs to Get Real Efficient, Real Fast

Kroger needs to get more efficient and more profitable real fast, which is what CEO Rodney McMullen and his team are trying to do. Attempts to increase efficiency include high-tech acquisitions like Ocado and the sale of cumbersome assets like convenience stores.

Investing in digital technology and adding technology like robots to fulfillment centers is at the center of the efficiency drive. A next logical step for Kroger would be to buy Instacart.

Other technologies Kroger can invest in or test to improve efficiency include blockchain, store automation, and self-driving vehicles. Two areas in the stores that might be automated are in-store restaurants and pharmacies. Companies in California are experimenting with burger-flipping and pizza-cooking robots that might be of use to Kroger.

Kroger is on the Cutting-edge of Retail

Use of robots in kitchens in pharmacies would make sense at robots because they would not be on the floor where customers could mess with them. Instead, the robots would be in the back and can be used in such a way customers would never see or interact with them.

With its large revenues and vast footprint, Kroger is the perfect testing ground for next-generation retail technology. Many of those locations are on the cutting-edge of retail.

Kroger operated 2,782 supermarkets nationwide on February 3, 2018, Statista reported. 2,268 of those stores contained pharmacies and 1,489 had filling stations. More importantly, in-store pickup of groceries ordered online is now available from 1,056 Kroger locations.

The pickup is important because those stores are positioned to serve as neighborhood or regional hubs for online grocery delivery. The same associates that pull online orders for customers can just as easily hand the orders off to a delivery driver.

Kroger is a Great Value Investment in Retail

All this makes Kroger a great value investment in retail because its shares were trading at just $24.77 on May 21, 2018. That makes it incredibly cheap.

More importantly, Kroger is a great dividend stock, KR shareholders received a cash dividend of 12.5¢ on 14 May 2018. That was an increase from 12¢ on 11 May 2017 and 10.5¢ on 11 May 2016. This means Kroger is a growing company that pays a growing dividend but offers a low stock price.

Therefore, Kroger is one of the best values in American retail right now. If you are looking for a bargain stock in retail posed to cash in on the delivery boom, Kroger is it.