Kroger Co.: Q1'26 Preview: New Balancing Act

研报英文原文证据摘录

Kroger Co.: Q1'26 Preview: New Balancing Act

UpdateMconfidence in KR's ability to claw back market share while still protecting the

overall P&L and '26 guidance.

• Scenario 2: The "Show Me" Investment Cycle (-). KR's FIFO gross margin

faces tens of bps of pressure y/y due to a step-up in price investments that

are not fully self-funded, and this occurs prior to the realization of market

share gains. In this scenario, we think the stock reaction would be negative as

the equity story moves into a "show me" mode where KR will only get credit

for its strategy once share gains become more visible.

• Scenario 3: Threading the Needle (+/-). KR's FIFO gross margin faces slight

pressure y/y but is largely stable, while IDs ex-fuel grow near +1% and the

magnitude & timing of additional price investments throughout '26 is left

open-ended. In this scenario, our instinct is the stock will face pressure as

there is risk the degree of price investments will not be enough to drive

meaningful share gains, yet gross margin still declines y/y in '26. That said,

we see an upside case in which KR is able to provide enough detail on the

source of funds for the investments which assuages these concerns.

Q1'26 Preview:

Expecting in-line IDs ex-fuel of +1.0%. Per Nielsen, industry sales for the period

aligned with KR's fiscal Q1 grew +2.0% y/y. Applying a ~100 bps spread between

industry sales and KR's IDs ex-fuel implies +1.0% growth, which is in-line with the

consensus estimate of +1.1%. We believe a ~100 bps spread is appropriate as KR has

cycled the benefits from outsized pharmacy growth in 2025 (driven by both existing

customers fulfilling more scripts as well as new customer growth due to competitor

closures) which narrowed KR's spread to slightly positive levels ( Exhibit 1 ). In