Citi opens downside catalyst watch on Kroger as Walmart price war intensifies

Investing.com -- Citi has opened a short-term downside catalyst watch on Kroger (NYSE: KR) ahead of second-quarter results on Sept. 11, warning that intensifying price competition from Walmart could pressure the grocer's comparable sales and margins.

The bank pointed to Walmart's roughly $3 billion tariff refund, which is largely being invested in food and grocery prices to drive further market share gains. As a reference point, Citi noted that figure compares to Kroger's overall EBIT of $5 billion.

"We believe this competitive dynamic seems more pronounced than when we last heard from mgmt in 1Q, and may not be as short-term as hoped," analyst Paul Lejuez wrote, adding that Walmart hopes vendors will help fund price investments beyond the third quarter, since suppliers would not want to give up the unit volume gains that come with them.

Citi expects roughly in-line second-quarter results, modeling identical sales up 1% and earnings of $1.05 per share. But it anticipates management taking a more conservative view on the second half, forecasting a cut to full-year comp guidance and an earnings range of $5.00 to $5.20.

The bank lowered its own full-year earnings estimate to $5.05 from $5.22, citing a more cautious gross margin view, and cut its 2027 forecast on expectations that competitive dynamics persist.

Citi's traffic tracker showed Kroger foot traffic decelerating to 0.4% in the quarter from 1.7% previously. Its price target falls to $57 from $61.

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