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5-Star Price
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Capital Allocation
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Our $33 per share valuation of narrow-moat Kroger is unlikely to change substantially after the firm announced solid third-quarter results (10.9% identical sales growth, excluding fuel; 2.7% operating margin) that continue to be driven by Americans’ turn homeward during the pandemic. With vaccines on the horizon, we continue to expect normalization as case counts fall in fiscal 2021, leading to 2%-3% top-line growth and operating margins long-term.
Kroger is the leading American grocer, with 2,757 supermarkets operating under several banners throughout the country as of the end of fiscal 2019. Around 82% of stores have pharmacies, while over half also sell fuel. The company also operated more than 300 fine jewelry stores at the end of fiscal 2019. Kroger features a leading private-label offering and manufactures around a third of its own-brand units (and 42% of its grocery own-label assortment) itself, in 35 food production plants nationwide. Kroger is a top-two grocer in 90% of its major markets (as of late 2019, according to Planet Retail and Edge Retail Insight data cited by the company). Virtually all of Kroger's sales come from the United States.
