Kroger Earnings: Private-Label Lineup, Effective Promotion Drive Trips and Protect Profitability

Despite inflation’s grip on consumer spending habits, narrow-moat Kroger’s first-quarter sales results tracked largely in line with our fiscal 2023 expectations, with profitability better than anticipated. As such, we plan to raise our $54 fair value estimate by a low-single-digit percentage, leaving shares trading at a discount, particularly after a post-print mid-single-digit dip in share price. Although Kroger faces challenges in a price-competitive grocery landscape, we believe investors underestimate the firm’s ability to resonate with consumers through its dynamic private-label offerings and data-driven promotional capabilities, while utilizing scale to extract efficiencies to invest in price. These features underpin the brand asset and cost advantage we see for Kroger.