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The Kroger Co KR

Morningstar Rating
$55.63 −1.30 (2.28%)
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Company Report

Kroger: Competitive Pressures Prompt No-Moat Rating, but Steady Demand Should Buoy Financial Results

Although Kroger operates over 2,700 stores and its top line eclipses $150 billion, we have stripped the grocer of its narrow moat rating as we no longer believe it has a durable competitive edge. The industry is highly competitive, with a virtual absence of customer switching costs, so we think food retailers tend to compete primarily on price. While Kroger’s national footprint likely results in strong relationships with its suppliers—the company is the third-largest domestic grocer with about 7% share, according to Euromonitor—we fail to see how national scale translates into a substantial cost advantage over lower-priced peers like wide-moat Walmart, wide-moat Costco, and hard discounters such as Aldi. Additionally, we don’t think Kroger’s loyalty membership program, fuel rewards, and in-store pharmacy provide a unique means of driving foot traffic to stores.

Price vs Fair Value

KR is trading at a 4% premium.
Price
$56.93
Fair Value
$85.00
Uncertainty
Low
1-Star Price
$37.43
5-Star Price
$92.00
Economic Moat
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Capital Allocation
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Bulls Say, Bears Say

Bulls

Kroger’s loyalty membership program allows the firm to personalize its promotional activity, driving traffic to its stores.

Bears

The unit economics of digital order fulfillment are less favorable than traditional brick-and-mortar shopping and are likely to weigh on Kroger’s margins.

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News

Trading Information

Previous Close Price
$56.93
Day Range
$55.5257.23
52-Week Range
$42.1058.34
Bid/Ask
$55.46 / $55.66
Market Cap
$40.15 Bil
Volume/Avg
1,457 / 5.3 Mil

Key Statistics

Price/Earnings (Normalized)
12.09
Price/Sales
0.28
Dividend Yield (Trailing)
2.03%
Dividend Yield (Forward)
2.09%
Total Yield
2.06%

Company Profile

Kroger is one of the largest grocery retailers in the United States with more than 2,700 stores across a portfolio of over 20 supermarket banners. The company touts its ingrained position across US communities, citing that it is a top-two grocer in most of its major market areas. Over one fourth of Kroger’s roughly $110 billion in nonperishable and fresh food sales (about 75% of revenue) stems from its private-label portfolio, of which the company manufactures about 30% of units via its 33 food production plants. The firm also operates fuel stations and pharmacies at 60% and 80% of its locations, respectively.
Sector
Consumer Defensive
Industry
Grocery Stores
Stock Style Box
Mid Value
Total Number of Employees
414,000

Competitors

Valuation

Metric
KR
ACI
TGT
Price/Earnings (Normalized)
12.097.0018.71
Price/Book Value
3.534.245.74
Price/Sales
0.280.150.72
Price/Cash Flow
6.903.0710.20
Price/Earnings
KR
ACI
TGT

Financial Strength

Metric
KR
ACI
TGT
Quick Ratio
0.330.120.27
Current Ratio
0.810.840.91
Interest Coverage
7.434.1911.55
Quick Ratio
KR
ACI
TGT

Profitability

Metric
KR
ACI
TGT
Return on Assets (Normalized)
6.91%6.46%8.02%
Return on Equity (Normalized)
32.00%76.28%35.66%
Return on Invested Capital (Normalized)
12.44%12.36%15.13%
Return on Assets
KR
ACI
TGT
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