Despite reporting decent quarterly results, shares of Kroger (KR) recently plummeted more than 14% as investors showed their disappointment in the grocery-store operator’s revenue and overall store traffic data, asserts value investor Chris Quigley, contributing editor to The Prudent Speculator.

Sales for the period of $27.9 billion came in below consensus analyst expectations of $28 billion. While the top-line came up short, KR posted better-than-expected adjusted EPS ($0.41 vs. estimates of $0.39).

The largest U.S. supermarket chain by stores and sales has continued to focus on investing in online offerings as well as popular store brands and natural goods to help boost traffic. Kroger is also lowering prices and overhauling the layout of its stores. Digital sales grew by more 50% in the second quarter.

That said, traffic was lighter than expected in the previous quarter and management expects that could be the same for the coming quarter as the company continues to overhaul its stores to prioritize brands its data shows sell best.

Kroger said its financial strategy continues to key on using its free cash flow to drive growth while also maintaining its current investment grade debt rating and returning capital to shareholders.

While there is little doubt that competitive headwinds will continue to blow briskly as Kroger battles the likes of Whole Foods — now owned by Amazon (AMZN), Walmart (WMT), Target (TGT), Aldi and numerous other grocers, we like the strides and operational momentum the company has been making and its focus on online services and investments designed to engage its customers on inventory and store offerings.

We also are encouraged that like Walmart, Kroger’s click and collect grocery services continue to score better in customer satisfaction surveys than grocery delivery (something that could help them slow the Amazon threat, as Amazon itself only delivers and its Whole Foods stores that can conduct click and collect do not have locations in a large number of Kroger’s markets).

The shares trade at a very reasonable 12.8 times next 12-month adjusted EPS projections, while the stocks yields 2%. Our target price on KR has been trimmed slightly to $38.

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