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Lakeview's Rothbort on Kroger: Much Better Buy Than WFM (Audio) · Bloomberg Intelligence

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  Speaker 1: to I'm Charlie Pellot. That's a Bloomberg business flash. You're
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  Speaker 1: listening to Taking stock with Pim Fox and Kathleen Hayes
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  Speaker 1: on Bloomberg Radio. All right, let's bring in Scott roth
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  Speaker 1: for right now. He is president and founder of Lakeview
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  Speaker 1: Asset Management, and he joins us from the great state
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  Speaker 1: of New Jersey. Scott, Uh, we're gonna talk a little
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  Speaker 1: bit about supermarkets and food retailers because they've had a horrible,
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  Speaker 1: horrible week, um, getting really crushed, except for the fact
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  Speaker 1: that Kroger is doing well today, um after putting out earnings.
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  Speaker 1: So what's going on with Kroger. Well, you know, I
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  Speaker 1: think that when you're looking at the industry right now,
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  Speaker 1: people are looking at what happened with Sprouts Farmers Market
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  Speaker 1: earlier in the week and Whole Foods earlier in the summer,
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  Speaker 1: and both of those stocks have have ciently had problems recently,
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  Speaker 1: and and Kroger as well had really been so both
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  Speaker 1: hard from it, it's highs. Kroger is somewhere. Um it's
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  Speaker 1: kind of a hybrid type of operation. Uh. It's it's
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  Speaker 1: part Costco because it does sell gasoline. Um, it is
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  Speaker 1: part Whole Foods because the Kroger is trying to bring
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  Speaker 1: in organic foods into the mix. And it's part of
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  Speaker 1: the traditional uh you know path Mark type of of
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  Speaker 1: a restaurant chain. They also happened to be the the uh,
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  Speaker 1: in my opinion, the best managed company the entire industry.
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  Speaker 1: And they have a larger buy back plan on and
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  Speaker 1: and they're very opportunistic. UM. So the company reported results today. UM.
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  Speaker 1: Their margins were down very slightly because of food prices. UH.
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  Speaker 1: They kind of trimmed backed their guidance, but overall it
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  Speaker 1: wasn't all about it that bed of a quarter. Comps
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  Speaker 1: are doing well, especially once you factor out the gasoline
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  Speaker 1: side of the business. UM. And I think they have
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  Speaker 1: a good mix of business as opposed to when you
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  Speaker 1: look at Whole Foods and Sprouts, which really are more
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  Speaker 1: focused on the organic side of the business. It's only
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  Speaker 1: about of Kroger's business right now. UM. But it's the
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  Speaker 1: healthcare costs and the pension costs paying people that's hurting them, right,
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  Speaker 1: That's only part of it. Um. Uh, pensions are hurting them.
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  Speaker 1: UM and UM. Look, these two companies are experiencing growth,
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  Speaker 1: you know, growth pains. UM. It happens. You know, you
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  Speaker 1: start out in these industries, um, and you know you
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  Speaker 1: grow slowly and you you get you know, white acceptance.
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  Speaker 1: But you know, as time goes on UM. While you're
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  Speaker 1: selling a higher priced organic UM product to people, you're
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  Speaker 1: still managing with lower cost UH inputs. And now what
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  Speaker 1: they're funding is that things like you know, pensions are
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  Speaker 1: starting to hit them, healthcare costs which didn't hit them before. UH.
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  Speaker 1: And so they're they're they're maturing here and and they're
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  Speaker 1: beginning to experience UH some of the complexities of maturing businesses.
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  Speaker 1: Scott Rothbort Kroger has undred stores around the country, Kroger
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  Speaker 1: of course the brand name Ralphs as well as Dylan's.
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  Speaker 1: The stock is down, you know since the beginning of
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  Speaker 1: the year. Is it worth buying Kroger KR at thirty
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  Speaker 1: six to share well him? As you know, we run
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  Speaker 1: a separate restaurant and food portfolio and put our newsletter
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  Speaker 1: h within the last few days we actually bought some
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  Speaker 1: Kroger before it during his couple of days before UM
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  Speaker 1: has a decent divon yield of one point five. We
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  Speaker 1: thought that that all the BED news as already in
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  Speaker 1: the stock. With the stock coming down from a fifty
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  Speaker 1: two week high of forty two seventy five down into
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  Speaker 1: that's today, I mean in today training it hit aft
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  Speaker 1: two week low. Uh it it actually a couple of
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  Speaker 1: days ago, but but we're pretty close to it today.
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  Speaker 1: And of course the stock is up on the day. Yeah.
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  Speaker 1: I don't see the stock going much lower. And I
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  Speaker 1: think this company has the ability to manage through the storm,
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  Speaker 1: if you want to call that in in the grocery industry.
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  Speaker 1: And because they don't have the exposure to exposure to
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  Speaker 1: the organic end of the business where we're seeing food
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  Speaker 1: costs come down tremendously and there's pressure on companies like
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  Speaker 1: Sprouts and Whole Food to lower their prices to the
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  Speaker 1: end consumer, Prober really doesn't have it because Probo gives
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  Speaker 1: you a choice. You can buy the traditional head of
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  Speaker 1: lettuce or you can buy an organic head of lettuce.
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  Speaker 1: And I think that's the big difference that's going on here.
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  Speaker 1: But also fund actually quite fascinating also is that that
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  Speaker 1: the comps a Whole Foods were down, yet the comps
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  Speaker 1: at Sprouts were higher. Um and you knows, as I
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  Speaker 1: tell my students at at UM at Setonhole University where
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  Speaker 1: it teaches in the snance department, when you look at comps,
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  Speaker 1: you really have to dig down through comps and comps
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  Speaker 1: have three different aspects to him, it's a traffic how
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  Speaker 1: many people come into the store, the price, um, you know,
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  Speaker 1: the price of the products, and the ticket side, how
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  Speaker 1: much you are actually buying. And so I think we
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  Speaker 1: we we've got to deconstruct um the comps for all
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  Speaker 1: these stores based upon those three uh different aspects of comps.
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  Speaker 1: And I think what's happening that Sprouts and Whole Foods
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  Speaker 1: are starting to see their their traffic flowing uh to
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  Speaker 1: Kroger's or other chains that are not organic but do
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  Speaker 1: have organic offerings. So you like the stock at about
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  Speaker 1: thirty one and a half dollars to share. But if
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  Speaker 1: you pull up him, if you pull up the c
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  Speaker 1: o MP on the Bloomberg can take a five year
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  Speaker 1: look at Kroger over the last five years, including reinvested
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  Speaker 1: dividends right the S and P and the consumer stage. No,
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  Speaker 1: no contest, Kroger did much better. Yeah, it's tripled, you know, Uh,
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  Speaker 1: the SPS only doubled, and Whole Food is you know,
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  Speaker 1: down over the last five years. So you know, Kroger
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  Speaker 1: understands how to manage um east to west and north
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  Speaker 1: to south in this country, both in a flute areas
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  Speaker 1: and just regular, you know, middle and lower class areas.
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  Speaker 1: Whole Foods doesn't understand how to do that because they
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  Speaker 1: can't appeal to every consumer. So, you know, plus Kroger's
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  Speaker 1: understands how to manage through good and bad economic times.
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  Speaker 1: Wholefoods doesn't understand that. We do want a little bit
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  Speaker 1: of Whole Foods because we want to be in the stock,
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  Speaker 1: But I think Roger is a much better buy at
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  Speaker 1: this point in time. We've gotta run, Thanks very much,
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  Speaker 1: Scott Rothford. He is the president founder lake View Asset Management.
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