The Kroger Co.
Analysis
Kroger's new CEO has made one bet: strip cost out fast, put the savings into lower shelf prices, and accept a weaker top line while profit holds. The savings are arriving ahead of plan; whether shoppers respond is the whole story. How fast does Kroger expect price gaps versus Walmart and Aldi to close?
- Cost cuts are landing faster than the company promised.
Kroger funds cheaper prices out of cost savings. Those savings came in 30% ahead of plan in Q1 and beat it again in Q2, so the price cuts cost shoppers less without costing the company its earnings. How much of Kroger's cost savings comes from buying better rather than cutting jobs?
- Sales are barely growing, and guidance came down.
Identical sales grew 0.2% in Q2 and the full-year outlook was cut to roughly flat. A produce outbreak, fuel above $4, SNAP cuts and lower drug prices all hit at once, and profit guidance was left alone, so earnings now rest on cost cuts.
- E-commerce and advertising now pay for themselves.
E-commerce turned profitable a quarter ahead of plan, and advertising grew 24%, its best in five years, because every online order makes the customer data more valuable. That gives Kroger a second source of money for lower prices. How much of Kroger's e-commerce growth comes from DoorDash and Uber Eats?
- Self-funded price investmentThe bull case is that Kroger can lower shelf prices using savings from sourcing and store productivity, so value improves without giving up margin.
- E-commerce and media profitOnline grocery and retail media are growing faster than the market and now earn a profit, giving Kroger an earnings stream that does not depend on store traffic.
- Store growth and own brandsNew store openings and own-brand items give Kroger ways to add sales and win trips that do not depend on matching discounter prices item for item.
- Price gap to discountersThe bear case is that Kroger's shelf prices drifted above discounters and mass merchants for years, and closing that gap costs more than the savings can fund.
- Lowered sales outlookSales are being held back by pressures outside management's control, and the company has already cut its identical sales guidance for the year.
- Payouts funded by borrowingCash returned to shareholders has exceeded what the business generates, with borrowing covering the difference and lifting net debt.
| Politician | Transaction | Amount | Traded | Filed |
|---|---|---|---|---|
Donald Trump Republican · Executive | Purchase | ≥$250K | Aug 21 | Oct 8 |
Donald Trump Republican · Executive | Purchase | ≥$1K | Aug 17 | Oct 8 |
Donald Trump Republican · Executive | Sale | ≥$1K | Aug 10 | Oct 8 |
Donald Trump Republican · Executive | Sale | ≥$50K | Jul 27 | Sep 22 |
Donald Trump Republican · Executive | Sale | ≥$1K | Jul 24 | Sep 22 |
Congressional trading data provided by QuiverQuant
How The Kroger Co. turned $148B of revenue into $1.9B of operating income.
| Revenue | ||
|---|---|---|
| Perishable | $37.2B | ▲ 2.40% YoY |
| Pharmacy | $18.2B | ▲ 15.81% YoY |
| Total revenue | $148B | |
| Gross profit | $34.4B | 23.3% |
| Operating income | $1.9B | 1.3% |