E Kroger: The Top Grocery Stock For 2019

The U.S. grocery industry is in a state of great change. The rise of e-commerce has forced traditional supermarket operators to adapt to changing technology. Amazon (AMZN) acquiring Whole Foods for over $14 billion was a game-changer, as the e-commerce giant prepares to make a huge push into the grocery industry.

Fortunately, industry leaders like Kroger Co. (KR) have invested in their own e-commerce capabilities to keep pace. Kroger remains highly profitable, and its stock is cheap after a prolonged period of underperformance. With a dividend yield above 2% and annual dividend increases, Kroger is the top grocery stock for 2019.

An Industry Under Assault

Now that Amazon has absorbed Whole Foods, it has a serious foothold in the brick-and-mortar grocery industry. From there, it can apply the same strategies that made it the unquestioned leader in e-commerce. Specifically, through a focus on low prices and maximum customer satisfaction, Amazon could make significant market share gains in grocery, at the expense of traditional grocery stores.

Amazon has already made strides to lower prices at Whole Foods, and in the not-too-distant future will be opening cashier-less stores. Putting the customer first has been a long-standing belief of Amazon’s, and it is now applying this same principle to grocery.

While some brick-and-mortar grocery store operators will be left behind, Kroger has invested significantly in its own initiatives. It has allocated more than $4 billion to price cuts in the last 19 years. And, it has invested in its own digital platform ClickList. This has helped Kroger keep pace with Amazon, and continue to grow sales.

Last quarter, Kroger company grew its adjusted sales by 1.6% but its gross margin shrank from 22.9% in prior year’s quarter to 22.0% due to changes in mix, price discounts and investment in the supply chain. Management expects 2.0%-2.25% same-store sales growth this year and adjusted earnings-per-share of $2.15-$2.25.

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Gary Anderson 7 months ago Contributor's comment

I am not interested in casherless stores. Even self checkout has a guide to deal with vegatables.