Kroger Company (KR) Receives a Hold from UBS

Kroger plans to open 110 new 'Fresh' format stores by 2029, aiming to cut grocery costs by $5 billion. The move follows a planned reduction of 3,000 corporate jobs to streamline operations and focus on price reductions, according to CEO Greg Foran. Kroger faces competition from Walmart, with Consumer Reports noting its prices are nearly 15% higher.

Kroger (KR) plans to invest $5 billion by 2029 to lower prices, aiming to compete with Walmart (WMT) and Costco (COST). The company expects to achieve $4 billion in annualized cost savings by 2029, with half from cost of goods. Kroger also announced cuts to about a third of its corporate roles. The stock saw volatility post-announcement, closing at $64.13 on October 21. Analysts have adjusted price targets, with Deutsche Bank at $70, Guggenheim at $68, UBS at $66, and Wells Fargo at $60.

Kroger plans to open 110 new stores over three years, featuring three new formats focused on fresh foods, meal solutions, and e-commerce. The company aims to drive 3% annual comparable sales growth through 2029, with a $5 billion investment. New stores will range from 50,000 to 99,000 square feet, tailored to different market needs. Kroger expects the new formats to generate $7 billion in annualized incremental revenue once mature.

Kroger ex-CEO Rodney McMullen testified that he doubted the $24B Kroger-Albertsons merger's chances due to FTC opposition. Albertsons sued Kroger for a $600M breakup fee and $8B in damages, alleging insufficient antitrust efforts. Kroger claims it invested $1B in the merger but faced regulatory hurdles. A bench trial is underway, with a ruling expected in months.

Kroger announced a plan to achieve $4 billion in annual savings through direct sourcing, reduced indirect spending, expanding its Capability Center, and leveraging technology and AI. The company aims to increase direct sourcing to over 10% and cut corporate jobs by 3,000. These changes are part of a broader strategy outlined during its Investor Day.

Kroger Co. aims to grow its private label business, which generates $40 billion in sales, with targets of $5 billion for its Private Selection brand and expansion of its Smart Way value line. The company plans to invest in premium and value segments, including global flavors and protein products, to meet diverse consumer needs. According to Kroger, its Simple Truth brand is the largest natural and organic brand in the U.S.