March 7, 2019 / 1:00 PM / 13 days ago

Kroger's $3 billion splurge set to hit earnings, shares slide

(Reuters) - Kroger Co projected annual profit below Wall Street estimates on Thursday, as the grocer spends billions of dollars on modernizing its stores and delivery to compete better with Walmart and Amazon.

FILE PHOTO: The Kroger supermarket chain's headquarters is shown in Cincinnati, Ohio, U.S., June 28, 2018. Picture taken June 28, 2018. REUTERS/Lisa Baertlein

Its shares slid as much as 14 percent in morning trade after it also reported a 10 percent fall in fourth-quarter revenue and lower-than-expected earnings for the first time since October 2017.

Profits are expected to come under pressure as the retailer plans annual spending of up to $3.2 billion — up from $3 billion last year — to overhaul stores and improve its online business under a program called “Restock Kroger” launched over a year ago.

“We realized business transformations are hard,” Kroger Chief Executive William McMullen said on a conference call with analysts. “But I want to emphasize we are on track to deliver on our Restock Kroger commitments.”

The Cincinnati-based company has built robot-aided warehouses and is trying out self-driving vehicles to improve delivery, while introducing shelves in hundreds of stores that play videos and show nutritional information.

Such moves are expected to help Kroger better compete with the likes of Amazon, which is looking to expand in the grocery business, according to media reports.

Kroger said it had finished most of its store remodeling last year, and going forward, its work would be more targeted and less disruptive to customers.

The retailer, which also runs gas stations, forecast full-year earnings of between $2.15 and $2.25 per share, which fell short of Wall Street expectations of $2.26.

“We expect 2019 to be a transition year with only modest operating income growth,” Moody’s Vice President Mickey Chadha said of Kroger.

Its net income plunged to $259 million in the fourth quarter ended Feb. 2, from $854 million a year earlier. Excluding one-time items, the company earned 48 cents per share, below analysts’ estimates of 52 cents.

Revenue fell to $28.09 billion, missing estimates of $28.38 billion, mainly due to higher gas prices that discouraged customers from buying fuel.

Kroger’s shares were last down 9.5 percent at $25.76 in afternoon trading.

Reporting by Nivedita Balu in Bengaluru; Editing by Sai Sachin Ravikumar

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