The Kroger Co, (KR) shares initially dropped after reporting second quarter earnings but ended up closing Friday higher by 0.64% to $31.51. Adjusted earnings per share was $0.47, a two cent beat of the analyst forecast of $0.45. Total sales increased 4.0% to $26.6 billion, but was short of the analyst consensus of $26.8 billion. The company also cut 2016 EPS guidance from low end to midpoint of $2.19-2.28 to $2.10-2.20. Same store sales guidance was also lowered to 1.4% to 1.8%.
The grocery chain's CEO noted, “As a result of continued deflation, Kroger lowered its net earnings guidance range. We are focused on long-term performance over a three-to-five year horizon. We have the right strategy, the right people, and the financial flexibility to execute our strategy, which allows us to continue investing in our associates and our business and growing market share. By staying on our strategy, we create long-term value for our shareholders.”
Price action on the KR daily chart shows that bearish trend accelerated once price broke below the 50-day SMA. Last week, price made a key low at the $30.70 level. If we see that level taken out early this week, price may target the psychological $30.00 level. It is around that area that area that price could bottom out and form a bullish ABCD pattern. Point D is targeted with the 200% Fibonacci expansion level of the B to C leg. If bearish momentum continues, key support may come from the $25.00 zone.
Trade: Buy KR at $30.25, with a stop loss at $29.25 and a take profit at $33.25. The Risk/Reward Ratio is 1:3