Skip to Content
Stock Analyst Update

Kroger Continues to Rebuild for Future

We expect the firm's long-term performance will be characterized by low-single-digit revenue growth and operating margins over the next decade.


Considering that its third-quarter earnings leave narrow-moat  Kroger (KR) on track to meet our full-year targets, our $29.50 fair value estimate should not change materially in reaction to the news. With the quarter the latest part of a fiscal year that has seen meaningful, prudent investments in repositioning Kroger for the future (including price cuts and space-optimization efforts), we still expect the firm's long-term performance will be characterized by low-single-digit revenue growth and operating margins over the next decade. We suggest investors await a more attractive entry point before building a position, as the shares trade near their fair value.

In the quarter, revenue slid 0.3% on 1.6% identical-supermarket sales growth (without fuel). Year to date, Kroger saw 1.6% top-line growth against 14 basis points of operating margin expansion to 2.3%, relative to our earlier expectations of a 0.5% full-year revenue decline and a 60-basis-point uptick, respectively. Management reaffirmed its fiscal 2018 adjusted EPS target of $2.00-$2.15, consistent with our $2.10 expectation.

We are encouraged that the on-track Restock Kroger initiative is delivering early returns, with an initial focus on cost controls and broadening the grocer’s revenue streams. We believe such efforts are increasingly critical as the grocery industry sees upheaval, with entrants such as Amazon threatening Kroger’s strong standing. With alternative retailers attempting to usurp traditional grocers through mix, convenience, cost, or store experience (or a blend of several factors), we see the firm’s plans as the cost of maintaining operating margins in the low single digits rather than as representing a large profitability expansion opportunity. Still, the plan should help Kroger become more nimble while focusing resources on its more value-generative offerings.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Zain Akbari does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.