Disinflating food prices are putting pressure on Walmart's profit margins. Even though the retail giant continues to lead the grocery space, competitors are closing in.
continues to lead the U.S. grocery sector, but the gap with its rivals is narrowing, and pressure on profits is rising, according to a new report from Loop Capital Markets.The retailer's same-store sales growth at its grocery business has been outperforming rival supermarket chains since 2017, but the gap is narrowing. Also, as food prices are disinflating, grocery gross margins have worsened for Walmart, Wolf said Friday in a research note.
It's not alone. In the second quarter, gross margins worsened for Ahold and Publix as well, but remained the same forand even improved for privately-owned Albertsons, according to the note. Wolf expects more of the same in the third quarter. The Commerce Department found that grocery sales in the third quarter rose by 4% year-over-year, which was a faster pace than the 2.6% gain in the second quarter and the 2.5% increase in the first quarter.
Despite the sales growth, the pressure on profits means Wolf continues to hold a neutral view on the sector. Walmart is set to report fiscal third-quarter earnings on Nov. 14. Analysts are expecting earnings of $1.09 per share, according to Refinitiv. For Kroger, analysts are expecting fiscal third-quarter earnings of 48 cents per share. It last reported its earnings in September.
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