Kroger stock falls to six-month low while pursuing Albertsons merger

Sales for Kroger (KR) came in lower than expected in its second quarter. The supermarket chain’s stock has dropped to a six-month low amid mixed earnings and a $1.4 billion opioid claim settlement.Yahoo Finance’s Julie Hyman and Brad Smith monitor the status of Kroger’s merger with Albertsons Companies (ACI) despite antitrust concerns by Federal Trade Commission (FTC) officials.

Video Transcript

[AUDIO LOGO]

JULIE HYMAN: Shares of Kroger are slipping today, after the grocer saw sales come in below expectations in the second quarter, after it said it incurred a $1.4 billion opioid claim settlement. But also big news coming on its quest to acquire Albertsons. Remember, they have been trying to win antitrust approval for their merger of $24.6 billion. What had been reported upon earlier in the week has indeed been confirmed, that the company is going to sell 413 stores, or I should say Kroger and Albertsons together, collectively, are going to sell 413 stores to the privately-held CNS wholesale grocers, which I believe owns the Piggly Wiggly stores--

BRAD SMITH: Really?

JULIE HYMAN: Among others.

BRAD SMITH: I have a Piggly Wiggly tank top. I pull it out for the summers. I got it from Hilton Head Island, South Carolina.

JULIE HYMAN: I really need a picture of this.

BRAD SMITH: Done deal, yes.

JULIE HYMAN: But in any case, so that's what's going on here this morning. So, yes, Kroger did report the numbers. But it's sort of been overshadowed by this divestiture, because they have been trying to get this merger done.

BRAD SMITH: So for the numbers, then, I will add that in later. Then in identical sales without fuel, that increased by about 1%, underlying growth of about 2.6% all in. This is also a quarter where they saw digital sales grow by about 12%.

Of course, there was many years ago, I believe around 2018, that deal that they made with Ocado to really beef up their ability to have more of these digital connections. So continuing to see digital sales grow at a time where, of course, Walmart, Amazon continuing to invest into that front for themselves on the grocery business. Even as Walmart has a large lion's share of the grocery market share here in the US, once you look at the digital market share for grocery, that's where Amazon and Walmart get a little bit closer here. And for Kroger trying to continue to maintain the number of households that they service, that's where they actually might have a little bit more of a competitive point, or journey, as well here.

JULIE HYMAN: Yeah, and it's interesting as we get back to the consolidation for just a second here. The US grocery market is still incredibly diverse, you don't have a lot of consolidation. That CNS company, by the way, isn't even the largest held private grocer, there are quite a number in the United States. Wegmans, one of them, is opening downstairs in the building.

BRAD SMITH: Thank goodness.

JULIE HYMAN: And then you have the likes of Publix et cetera, as well, in the United States. So this Kroger Albertsons combination will indeed create a big player in the industry, but there still are a lot of big players. But, as we know, the Federal Trade Commission has been, we could say, more reluctant to approve some big deals across a host of industries. It has a rap of being anti-tech, if you will, or reluctant to allow tech deals, and, in fact, maybe trying to separate tech companies. But it's not just tech, they are really scrutinizing deals in other industries, like grocery, as well.

BRAD SMITH: Yeah, and included within the sale too, you mentioned the 413 stores. You've got eight distribution centers, two offices, five private label brands. And here's why I mentioned those private label brands across the 17 states and district of Columbia, is because in a trade down environment, those private label brands become even more valuable for a company to be able to deploy to so many customers who are just looking cross price, or their unit price, that they are actually paying, and actually trying to figure out, all right, can we save a few nickels, dimes, dollars, and cents in certain areas of that grocery store or shopping experience as well. And so that private label part of this could be particularly valuable in this deal too.

JULIE HYMAN: Yeah, and they have the benefit of being higher margin as well. So that's something that helps out the stores as well. So we'll see, if indeed, they get approval for this deal. They say they're still planning to close it in early 2024.