The Kroger Co. (KR) | Investment Case

1. Company Snapshot

1.a. Company Description

The Kroger Co. operates as a retailer in the United States.The company operates combination food and drug stores, multi-department stores, marketplace stores, and price impact warehouses.Its combination food and drug stores offer natural food and organic sections, pharmacies, general merchandise, pet centers, fresh seafood, and organic produce; and multi-department stores provide apparel, home fashion and furnishings, outdoor living, electronics, automotive products, and toys.

The company's marketplace stores offer full-service grocery, pharmacy, health and beauty care, and perishable goods, as well as general merchandise, including apparel, home goods, and toys; and price impact warehouse stores provide grocery, and health and beauty care items, as well as meat, dairy, baked goods, and fresh produce items.It also manufactures and processes food products for sale in its supermarkets and online; and sells fuel through 1,613 fuel centers.As of January 29, 2022, the company operated 2,726 supermarkets under various banner names in 35 states and the District of Columbia.

The Kroger Co. was founded in 1883 and is based in Cincinnati, Ohio.

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1.b. Last Insights on KR

The Kroger Co.'s recent performance was negatively impacted by mixed Q3 results, with softer-than-expected revenue. Analysts slashed their forecasts following the earnings release. The company's strategy of aggressive share repurchases, while boosting shareholder returns, raised concerns about financial engineering versus structural growth issues. Leverage is rising, and interest costs are doubling. Guidance was narrowed to the low end, contributing to investor uncertainty. Institutional investors, such as Baird Financial Group Inc. and California Public Employees Retirement System, have reduced their stakes in the company.

1.c. Company Highlights

Last Price	68.66
Change Percentage	0.94%
Open	68.03
Previous Close	68.02
Market Cap ( Millions)	45499
Volume	4681089
Year High	74.9
Year Low	58.6
M A 50	63.35
M A 200	67.29

FCF Yield	4.94%
Dividend Yield	1.95%
ROE	9.41%
Debt / Equity	357.84%
Net Debt / EBIDTA	401.34%
Price To Book	6.39
Price Earnings Ratio	57.0
Price To FCF	20.24
Price To sales	0.31
EV / EBITDA	12.61

2. Kroger's Q3 2025 Earnings: Strong Execution and Strategic Progress

The Kroger Co. reported robust financial performance for its third quarter 2025, with identical sales without fuel growing 2.6% year-over-year, accelerating to 4.9% on a two-year stack basis. Adjusted EPS was $1.05, beating estimates of $1.03 and reflecting 7% growth compared to last year. The company's FIFO gross margin rate, excluding rent, depreciation, and amortization and fuel, increased 49 basis points, driven by the sale of Kroger Specialty Pharmacy, strong own brands' performance, and lower supply chain costs. E-commerce sales grew 17%, driven by delivery, and the company expects to deliver approximately $400 million in e-commerce profitability improvements in 2026.

Publication Date: Dec -07

                                    📋 Highlights
                                    E-Commerce Profitability::
                                                Kroger expects to make its e-commerce business profitable in 2026, driven by $400 million in savings from closing automated fulfillment centers and growth from partnerships with Instacart, DoorDash, and Uber Eats.
Store Expansion Acceleration::
                                                The company plans to open 14 new stores in Q4 2025 and increase new store builds by 30% in 2026, focusing on large formats (123,000 sq ft and 99,000 sq ft).
Sales Growth Momentum::
                                                Identical sales without fuel grew 2.6% YoY and accelerated to 4.9% on a two-year stack, with e-commerce sales rising 17% due to delivery demand.
Capital Returns & Guidance::
                                                Kroger returned $5 billion via an ASR program and raised its 2025 adjusted EPS guidance to $4.75–$4.80, with $2.5 billion remaining for share repurchases by year-end.
Cost Savings & Margin Improvements::
                                                FIFO gross margin rate excluding fuel, rent, and supply chain costs rose 49 bps, with $400 million in savings from fulfillment center closures to fuel reinvestment in pricing and technology.

                                

Operational Highlights and Strategic Initiatives

Kroger announced the closure of three automated fulfillment centers and expanded relationships with third-party delivery providers Instacart, DoorDash, and Uber Eats, marking a significant step in its e-commerce strategy. The company expects to break ground on 14 new stores in the fourth quarter, accelerating its store development plans. Additionally, Kroger returned to in-office work five days a week to strengthen collaboration and accelerate decision-making.

E-commerce and Digital Transformation

Kroger's e-commerce business is on track to become profitable in 2026, driven by a $400 million reduction in losses from closing automated fulfillment centers and growth from new partnerships. The company plans to reinvest some of the savings into pricing to stay competitive and improve the customer experience. The retail media business is also growing, with double-digit growth in Q3, and is expected to accelerate in Q4.

Valuation and Outlook

With a P/E Ratio of 15.22 and an EV/EBITDA of 8.38, Kroger's valuation appears reasonable, considering its strong financial performance and growth prospects. Analysts estimate next year's revenue growth at 0.5%. The company's capital allocation priorities remain focused on delivering a total shareholder return of 8% to 11% over time, investing in projects that maximize return on invested capital, and returning excess capital to shareholders.

Consumer Trends and Market Dynamics

Kroger is seeing a change in consumer behavior, with the mid-tier customer pulling back, similar to lower-income customers. The company is responding by focusing on value and serving customers during uncertain times, having taken down another thousand items in Q3 to lower prices. The shift from restaurant purchases to food at home purchases is expected to continue, benefiting Kroger's business.

3. NewsRoom

Skip the Reservation: Kroger Makes Valentine's Day Special with Surf and Turf Savings

Feb -10

Source: prnewswire.com

Kroger: Shares Rally On New CEO Announcement - Time For Re-Rating?

Feb -10

Source: seekingalpha.com

Kroger names former Walmart executive Greg Foran as its new CEO

Feb -10

Source: fastcompany.com

Envestnet Asset Management Inc. Decreases Stake in The Kroger Co. $KR

Feb -10

Source: defenseworld.net

Market Today: Novo sues Hims; Highlander EV; Alphabet bond

Feb -09

Source: gurufocus.com

Big Grocery Chain Kroger Needs to Take on Walmart—So It Named an Alum Its CEO

Feb -09

Source: investopedia.com

Kroger's Strategic Moves: New CEO Appointment and Positive FY26 Outlook

Feb -09

Source: gurufocus.com

Kroger shares jump on appointment of new CEO Greg Foran

Feb -09

Source: proactiveinvestors.com

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (2.00%)

6. Segments

Retail Operations

Expected Growth: 2.0%

Kroger's Retail Operations growth is driven by strategic investments in digital transformation, expansion of online shopping and delivery services, and enhancement of store formats to improve customer experience. Additionally, focus on private label brands, loyalty programs, and cost-saving initiatives contribute to the 2.0 growth level.

7. Detailed Products

Fresh Meat and Produce

Fresh meat, seafood, fruits, and vegetables sold in-store

Dairy and Bakery

Milk, cheese, bread, and baked goods sold in-store

Canned and Packaged Goods

Canned goods, pasta, rice, and packaged snacks sold in-store

Pharmacy Services

Pharmacy services, including vaccinations, health clinics, and medication management

Kroger Fuel Centers

Gas stations and convenience stores located near Kroger stores

Online Grocery Delivery

Online ordering and delivery of groceries from Kroger stores

Kroger Marketplace

Convenience stores offering a variety of products, including food, beverages, and household essentials

Private Label Brands

Kroger's own branded products, including Simple Truth, Private Selection, and more

8. The Kroger Co.'s Porter Forces

Forces Ranking

Threat Of Substitutes

The Kroger Co. operates in the grocery retail industry, where there are some substitutes such as online grocery shopping, meal kit delivery services, and discount stores. However, Kroger's strong logistics and distribution network, as well as its loyalty program, make it difficult for customers to switch to substitutes.

Bargaining Power Of Customers

Kroger's customers are fragmented and have limited bargaining power. The company has a large customer base and a strong loyalty program, which reduces the bargaining power of individual customers.

Bargaining Power Of Suppliers

Kroger's suppliers, such as food and beverage manufacturers, have some bargaining power due to the large volume of products they supply. However, Kroger's significant market share and purchasing volume also give it negotiating power.

Threat Of New Entrants

The grocery retail industry has high barriers to entry, including significant capital requirements, complex logistics and distribution networks, and established brand loyalty. This makes it difficult for new entrants to compete with Kroger.

Intensity Of Rivalry

The grocery retail industry is highly competitive, with many established players such as Walmart, Target, and Safeway. Kroger faces intense competition on price, product offerings, and promotional activities, which drives rivalry among competitors.

9. SWOT Analysis

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

	Value
Debt Weight	75.17%
Debt Cost	4.28%
Equity Weight	24.83%
Equity Cost	7.46%
WACC	5.07%
Leverage	302.74%

11. Quality Control: The Kroger Co. passed 4 out of 9 key points

Strong Liquidity

Low Deb

Strong Interest Coverage

Healthy Cash Flow

Operating Inefficiency

Strong Return On Equity

Consistent Revenue Growth

Consistent Operating Cash Flow Growth

Margin Improvement

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Altria

A-Score: 7.6/10

Value: 6.8

Growth: 5.8

Quality: 6.5

Yield: 10.0

Momentum: 7.0

Volatility: 9.7

1-Year Total Return ->

Village Super Market

A-Score: 6.6/10

Value: 7.9

Growth: 4.9

Quality: 4.7

Yield: 7.0

Momentum: 7.5

Volatility: 7.7

1-Year Total Return ->

Kraft Heinz

A-Score: 6.1/10

Value: 8.9

Growth: 3.8

Quality: 4.3

Yield: 9.0

Momentum: 1.5

Volatility: 9.3

1-Year Total Return ->

Kroger

A-Score: 5.6/10

Value: 3.9

Growth: 5.4

Quality: 3.0

Yield: 4.0

Momentum: 8.0

Volatility: 9.3

1-Year Total Return ->

Costco Wholesale

A-Score: 5.2/10

Value: 2.0

Growth: 6.8

Quality: 5.7

Yield: 2.0

Momentum: 5.0

Volatility: 10.0

1-Year Total Return ->

Natural Grocers

A-Score: 4.9/10

Value: 6.9

Growth: 5.9

Quality: 4.7

Yield: 6.0

Momentum: 2.0

Volatility: 3.7

1-Year Total Return ->

Peers Metrics

12.e Scoring ^Insights

12.f DCF ^BETA

Parameters

Short Term Growth

0.43%

Short term Time

10.0

Long-Term Growth

2.00%

WACC

5.07%

The Kroger Co. - US5010441013

1. Company Snapshot

1.a. Company Description

1.b. Last Insights on KR

1.c. Company Highlights

Strong Momentum

Medium Volatility

Average Yield

Earnings Beats

Average Quality

Stable Momentum

Less Volatile

Average Growth

Revenues Miss

Lower Quality

2. Kroger's Q3 2025 Earnings: Strong Execution and Strategic Progress

Operational Highlights and Strategic Initiatives

E-commerce and Digital Transformation

Valuation and Outlook

Consumer Trends and Market Dynamics

3. NewsRoom

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (2.00%)

6. Segments

Retail Operations

Expected Growth: 2.0%

7. Detailed Products

Fresh Meat and Produce

Dairy and Bakery

Canned and Packaged Goods

Pharmacy Services

Kroger Fuel Centers

Online Grocery Delivery

Kroger Marketplace

Private Label Brands

8. The Kroger Co.'s Porter Forces

Forces Ranking

Threat Of Substitutes

Bargaining Power Of Customers

Bargaining Power Of Suppliers

Threat Of New Entrants

Intensity Of Rivalry

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

11. Quality Control: The Kroger Co. passed 4 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

68.66$

Current Price

68.66$

Potential

-0.00%

Expected Cash-Flows

12.e Scoring ^Insights

12.f DCF ^BETA