A Kroger grocery store in Louisville, Ky.
Stacie Scott/Bloomberg
Kroger is edging lower on Thursday, a day after the supermarket chain’s annual investor day,
Kroger (ticker: KR) gave several updates at the event. The company said that its digital business—now around $10 billion—will double by the end of 2023, with costs coming down over time to improve profitability. In addition, the company’s automated warehouse “sheds” provided by partner Ocado Group (OCDO.UK) will be as profitable as in-store models by their fourth year on an Ebitda (earnings before interest, taxes, depreciation, and amortization) basis.
Analysts are weighing in, and while there might have been some optimism about the updates, ultimately it didn’t coax anyone off the sidelines.
Credit Suisse’s Robert Moskow reiterated a Neutral rating on Kroger, writing that the “ Ocado Group roll-out is still a ‘trust me’ story,” and that it will likely have to invest in associate pay and online capabilities to achieve its goals.
Jefferies’ Matt Fishbein reiterated a Hold rating but raised his price target to $37 from $33 on an improved sales and profit outlook, but warned that the stock’s valuation looks full “with the clear digital catalyst now behind us, and with normalized at-home food consumption levels and…cost inflation still key unknowns.”
Wells Fargo analyst Edward Kelly reiterated an Equal Weight rating on the shares. He writes that management is clearly gaining confidence about its business model. “Kroger’s tone has no doubt been bolstered by the pandemic, but there is more to the company’s growing enthusiasm,” including improved merchandising and e-commerce efficiency. That said, he warns that “success is no layup given structural headwinds,” and the end of Covid could put guidance at risk.”
In the bear camp, the update wasn’t much comfort. CFRA’s Arun Sundaram reiterated a Sell rating, writing that the main takeaway from the event is that digital profits will require patience. He thinks that “slowing comparable sales and margin headwinds will weigh on Kroger’s shares. Also, a $15 minimum wage will disproportionately impact conventional food retailers like Kroger.”
Kroger was down 0.2%, at $35.92, in early trading, while the S&P 500 was up 0.7%. The shares are up 13% year to date and have risen 18% in the past 12 months.
Write to Teresa Rivas at [email protected]
