Consumer

Shelly Banjo is a Bloomberg Gadfly columnist covering retail and consumer goods. She previously was a reporter at Quartz and the Wall Street Journal.

Don't put Kroger on the shelf just yet.

Shares of America's largest supermarket chain got slammed Thursday, dropping by as much as 9 percent, after it predicted slower growth this year and its fourth-quarter revenue fell short of Wall Street expectations.

Okay, we get it. People are worried about the U.S. economy, and declining grocery store sales are a bad sign. But let's get a little perspective here: Kroger reported its 49th consecutive quarter of sales growth, booking a 3.9 percent jump in sales at established locations from the year before. For comparison, Walmart pulled in just 0.6 percent growth in same-store-sales last quarter. Kroger's biggest problem? Lower gas prices and lower inflation generally mean that, even if customers buy more things, they're spending fewer dollars on them, hurting the top line. 

Steady As She Goes
Percentage Change In Sales At Established Locations From Year Before
Source: Bloomberg

Over the past two years, Kroger's shares have soared by nearly 80 percent, compared to a 7 percent rise in the S&P 500 and a 12 percent drop in Walmart's stock. And as I've argued before, Kroger has risen above the retail doldrums to reinvent the grocery store.

In The Bag
Kroger's share gains have outpaced Costco, Walmart since 2013
Source: Bloomberg

Lately though, investors have fallen out of love with Kroger. Year-to-date, its shares have dropped by 11 percent. Kroger may be a victim of its own success -- as it gets bigger, investors question how long it can keep up its rapid growth.

What's more, Kroger has been on such an acquisition spree lately, as we've written about here and here, there are bound to be hiccups as it figures out how to integrate all its purchases into its sprawling empire. And as Kroger filled its cart with companies, it also racked up a sizable amount of debt. 

Spending Spree
Kroger has been adding debt to finance a series of takeovers.
Source: Bloomberg

There are likely more acquisitions in the company's future -- with operations in only 35 states, it still has a ways to grow domestically, not to mention its prospects for international growth and online grocery delivery. It's also testing out a smaller store format called Main & Vine that could bring in customers looking for a quicker, more convenient shopping trip -- but of course this adds more complexity to Kroger's expanding business lines.

But Kroger is still relatively inexpensive compared to its peers. It's currently trading at 16.5 times forward earnings, compared with Costco's multiple of 25.9, Whole Foods' multiple of 20.6, and Walmart's multiple of 15.7.

And Kroger's best skill is its ability to jump quickly on big industry trends, as evidenced by early moves into natural and organic foods, as well as digital analytics and loyalty programs. So while there will certainly be growing pains as Kroger expands, it's not time for investors to panic. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Shelly Banjo in New York at sbanjo@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net