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 driven by strong Q4 earnings, beating estimates with $1.28 per share, up from $1.14 per share a year ago. The company's high-quality operations are expanding, generating ample free cash flow and returning capital to investors through share buybacks, including an accelerated share repurchase authorization and a standard $2 billion authorization, reducing the share count by over 8.5% in 2025. Additionally, the newly appointed CEO's focus on digital transformation, strategic growth, and e-commerce profitability improvements is expected to drive long-term expansion.

1.c. Company Highlights

Last Price	70.54
Change Percentage	-2.52%
Open	71.89
Previous Close	72.36
Market Cap ( Millions)	44641
Volume	5081642
Year High	76.58
Year Low	58.6
M A 50	69.01
M A 200	67.68

FCF Yield	7.91%
Dividend Yield	1.94%
ROE	13.04%
Debt / Equity	416.40%
Net Debt / EBIDTA	249.57%
Price To Book	7.49
Price Earnings Ratio	43.67
Price To FCF	12.65
Price To sales	0.3
EV / EBITDA	7.72

2. Kroger's Strong Q4 and Full Year 2025 Earnings: A Promising Outlook

Kroger's fourth quarter and full year 2025 earnings report revealed a robust financial performance, with identical sales without fuel growing 2.4% in Q4 and 2.9% for the full year. The company's adjusted EPS was $1.28 in Q4, beating estimates of $1.2, reflecting a 12% growth, and $4.85 for the full year, up 9% from last year. The strong adjusted free cash flow of $3.9 billion for the full year and completion of its $7.5 billion share repurchase authorization underscore the company's financial health.

Publication Date: Mar -06

                                    📋 Highlights
                                    Strong Sales Growth:
                                                Identical sales without fuel increased 2.4% in Q4 2025 and 2.9% for the full year, despite a 130 bps headwind from the Inflation Reduction Act.
E-commerce Expansion:
                                                E-commerce revenue grew 20% in Q4 2025, reaching $16 billion, with plans to achieve profitability by mid-2026 through AI, delivery, and third-party partnerships (contributing >$1.5 billion in 2026).
EPS and Profitability:
                                                Adjusted EPS rose 12% to $1.28 in Q4 2025 and 9% to $4.85 for the full year, supported by $3.9 billion in adjusted free cash flow and $7.5 billion in share repurchases.
2026 Guidance:
                                                Kroger targets 1–2% identical sales growth (excluding fuel) in 2026, with $2.7–2.9 billion in adjusted free cash flow and $5.10–5.30 in adjusted net earnings per share.

                                

Operational Highlights

The company's e-commerce business grew 20% in Q4, now a $16 billion business, and its Media business delivered $1.5 billion in operating profit in 2025, expected to grow double-digit in 2026. New CEO Gregory Foran emphasized the need to grow sales faster, improve value perception, and protect margins, with a focus on putting customers at the center, moving with urgency, strengthening e-commerce, and improving productivity.

Guidance and Outlook

Kroger's guidance for 2026 expects identical sales without fuel growth of 1-2%, with an approximately 130 basis point headwind from the Inflation Reduction Act. The company plans to increase new store openings by 30% in 2026, expanding into 2 new regions, and expects to deliver over $1.5 billion in sales from its convenience offerings. Adjusted FIFO operating profit is expected to be $5 billion to $5.2 billion, with adjusted free cash flow of $2.7 billion to $2.9 billion and adjusted net earnings per diluted share of $5.10 to $5.30.

Valuation and Metrics

With a P/E Ratio of 59.41 and EV/EBITDA of 13.58, Kroger's valuation suggests a premium for its growth prospects. The company's ROE of 10.12% and ROIC of 4.4% indicate a decent return on equity and invested capital. The Dividend Yield of 1.91% and Free Cash Flow Yield of 4.74% provide a relatively attractive return for investors.

Strategic Focus

Kroger is focused on improving e-commerce, with a goal to be profitable by the first half of 2026, and investing in areas such as AI, in-stock, and delivery services. The company is also working on center store SKU rationalization to simplify prices and improve value perception. With a glide path for improvements, Kroger aims to create a virtuous loop of efficiency and customer satisfaction.

3. NewsRoom

California, states seek $10.3 million for helping block Kroger-Albertsons merger

16:38

Source: reuters.com

Kroger is Hopping into Easter and Spring with Savings Across the Store

Mar -31

Source: prnewswire.com

Financial Planning Hawaii Inc. Buys Shares of 12,975 The Kroger Co. $KR

Mar -31

Source: defenseworld.net

The Kroger Co. (NYSE:KR) Receives Average Recommendation of “Moderate Buy” from Brokerages

Mar -31

Source: defenseworld.net

Investors Purchase Large Volume of Kroger Call Options (NYSE:KR)

Mar -26

Source: defenseworld.net

Kroger Helps Customers Fuel Up with 4X Fuel Points Weekends

Mar -25

Source: prnewswire.com

Coldstream Capital Management Inc. Raises Position in The Kroger Co. $KR

Mar -19

Source: defenseworld.net

Achmea Investment Management B.V. Has $36.68 Million Stake in The Kroger Co. $KR

Mar -18

Source: defenseworld.net

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

-4.64%

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 Strong Q4 and Full Year 2025 Earnings: A Promising Outlook

Operational Highlights

Guidance and Outlook

Valuation and Metrics

Strategic Focus

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

70.54$

Current Price

70.54$

Potential

-0.00%

Expected Cash-Flows

12.e Scoring ^Insights

12.f DCF ^BETA