Citi Places Kroger on Downside Watch, Citing Walmart's Price Investments

Citi has placed Kroger Co. (KR) on a short-term downside Catalyst Watch ahead of its second-quarter earnings report, citing intensifying price competition from rival Walmart Inc. (WMT).

Guidance Cut Expected

While the bank expects Kroger's second-quarter results to align with market expectations, it anticipates a reduction in the company's full-year financial outlook. Citi projects Q2 identical and comparable sales growth of 1.0% and earnings per share (EPS) of $1.05, both matching consensus estimates.

However, analysts at the bank forecast that Kroger's management will lower its guidance for fiscal 2026, reflecting a more challenging market. Key expectations include:

• Comparable Sales Guidance: Lowered to a range of 1.0% to 1.5%, down from the current 1.0% to 2.0%. The consensus estimate currently stands at 1.4%.
• EPS Guidance: Trimmed to $5.00 to $5.20 per share, from the previous range of $5.10 to $5.30. The market consensus is currently at $5.20.

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Walmart's Competitive Pressure

Citi attributes the expected guidance revision to significant price investments by Walmart, which are likely to pressure Kroger's sales and profit margins. Walmart is reportedly reinvesting a tariff refund of approximately $3 billion primarily into lowering prices on food and groceries to capture greater market share.

To put this in perspective for investors, Walmart's price investment is substantial when compared to Kroger's total annual earnings before interest and taxes (EBIT) of approximately $5 billion. Citi's note suggests this competitive dynamic appears more pronounced and potentially less short-term than what Kroger's management indicated after its first-quarter report.