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Kroger Concludes Sale of You Technology for $565 Million


The Kroger Co. KR recently concluded the sale of You Technology (YouTech) — a digital coupon and digital rebate publishing platform — to Inmar for $565 million. The total proceeds include $400 million of cash consideration. The company plans to utilize the amount received from the sale to lower its debt burden.

Concurrently, Kroger entered into an agreement with Inmar, whereby the latter will provide digital coupon services. Management believes that Inmar will use YouTech to bring innovative products at a faster rate in the market that will help in meeting the demand of consumer-packaged goods partners and retailers.

Existing Business Scenario

The grocery industry has been undergoing a fundamental change with technology playing a major role and the focus shifting to online shopping. This transition in shopping pattern is compelling supermarket chains to rapidly adapt to changes in the ecosystem. Kroger has taken stock of the situation and is giving itself a complete makeover.

Kroger is introducing new items, expanding digital coupons, and focusing on order online, pick up in store initiative. Also, the company’s “Restock Kroger” program is gaining traction. Further, management is targeting “margin-rich alternative profit streams.” We note that digital sales surged 58% during fiscal 2018 and Pickup or Delivery reached 91% of Kroger households.

The company, which faces stiff competition from bellwethers such as Walmart WMT and Amazon AMZN, has been working toward enriching customers’ shopping experience via innovations and enhancement of the e-commerce capabilities. To this end, it has launched Kroger Pay, a mobile payment app. Also, it has rolled out the Kroger REWARDS debit card — a rewarding payment service. Moreover, this Zacks #3 (Hold) company expanded its Home Chef Express meal kits nationwide. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Kroger, which shares space with Target TGT, also partnered with Microsoft to enhance customers’ shopping experience through data driven technology. The company is aggressively working toward more convenient grocery delivery options. In this regard, it has started using Nuro’s fully autonomous, driverless R1 vehicles for grocery delivery services.

In spite of these strategic endeavors, shares of Kroger have plunged roughly 15% against the industry's rise of 6.6% in the past three months. The stock came under pressure following the company’s fourth-quarter fiscal 2018 results, wherein the bottom line not only missed the Zacks Consensus Estimate but also declined year over year. Although, total sales topped the consensus mark, it fell from the year-ago quarter. Management also provided muted earnings view for fiscal 2019. (Read: Kroger's Q4 Earnings Miss Estimates, FY19 View Soft)

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