Tuesday, June 27, 2017

Kroger's dilemma

This morning while doing a few exercises, very few, I happened to see an interview with the CEO of Kroger, Rodney McMullen.  New to me, he is a native of small town Kentucky and a U.K. graduate, and has been a lifetime employee of the grocery company headquartered in nearby Cincinnati.  It did not look as if he relished this interview, in the least.

Kroger's stock has dived in the last two weeks from $30 to $23 as a result of a reduction in earnings guidance one day followed by the announcement of the Amazon acquisition of Whole Foods the next day, a double whammy that they could not have expected.

CEO McMullen said that he was focused on the long term and on the customer.  According to his commentary, virtually everything about Kroger was "great", even "incredible" in a few instances, and that the company was "proactive" on all fronts.  He noted that they had been in business for 130 years.  He did not answer any of the questions asked about the issues related to the new shape of the competition.  Clearly he stayed on a weak script and gave no evidence of being a humanoid.  That gave the impression to some that he was the product of a rigid corporate culture.

The company does have a credible following with three of its top shareholders being the respected discretionary investors Capital Research, Fidelity, and Janus.  That's impressive in these days of dominance by huge index funds investing in large companies. There actually must be some good management at work there since my last visit to one of their stores in hometown Virginia years ago. Unfortunately McMullen did not inspire anyone and his view that everything was "great" suggested that nothing could get better to some observers.

Then again and perhaps fortunately, it will give opportunistic investors a chance to evaluate the stock and decide if they can step in a at "great" price.

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