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The Kroger Co KR

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Morningstar’s Analysis

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Economic Moat




Pandemic Leads to Continued Exceptional Sales and Profitability at Kroger, but Shares Trade Fairly

Zain Akbari, CFA Equity Analyst

Analyst Note

| Zain Akbari, CFA |

Our $31.50 fair value estimate for narrow-moat Kroger should rise by a mid-single-digit percentage after the company announced strong second-quarter earnings fueled by Americans’ continued pandemic-related turn homeward. While top-line expansion tapered from first-quarter levels (14.6% identical sales growth, excluding fuel, versus 19.0%), Kroger now appears poised to beat our prior full-year 9% target, particularly with rising infection rates in the fall and winter likely to maintain or amplify current trends. Coupled with strong scale-driven profitability (roughly 70 basis points of adjusted operating profit expansion, or nearly 85 basis points year to date, against our 30-basis-point prior estimate), we anticipate lifting our fiscal 2020 adjusted EPS estimate of $2.78 toward management’s $3.20-$3.30 range.

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Company Profile

Business Description

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.

1014 Vine Street
Cincinnati, OH, 45202
T +1 513 762-4000
Sector Consumer Defensive
Industry Grocery Stores
Most Recent Earnings Jul 31, 2020
Fiscal Year End Feb 1, 2021
Stock Type High Yield
Employees 435,000