Kroger Earnings: Disinflation and Budget-Conscious Shoppers Are Near-Term Headwinds; Shares Cheap

Judging from the muted share price reaction, investors weren’t caught too off-guard by subdued third-quarter results from narrow-moat Kroger, which faced disinflation headwinds and shoppers who continue to seek value, much as wide-moat grocery peer Walmart did. Same-store sales excluding fuel dropped 0.6% as Kroger faced a tough 6.9% comparison, waning food inflation (down 270 basis points from last quarter to the low single digits), and reduced pharmaceutical sales from the terminated Express Scripts deal last December (a 150-basis point headwind). While Kroger continues to gain higher-income households, overall volume was down (unquantified by the company), lagging the growth in inflation. Amid these headwinds, Kroger once again lowered its 2023 same-store sales growth outlook to 0.6%-1% from the low end of prior 1%-2% guidance.