The Kroger Co. (KR)

Founded in 1883, Kroger is the largest pure-play supermarket operator in the United States, operating roughly 2,700 stores across more than 30 banners. Kroger’s business is primarily grocery-led (roughly 79% of sales), spanning fresh food and private-label offerings, complemented by fuel centers (9%) and pharmacies (12%). The firm also generates income from advertising, data analytics, and manufacturing.

We expect economic growth to continue through 2028. After more than seven months of high gasoline prices, unemployment is low at 4.2% and the S&P 500 is up 13% year to date (helped by record earnings and healthy margins). Argus expects S&P 500 earnings per share (EPS) to rise almost 25% to $340 in 2026 and about 15% to $390 in 2027. EPS are helped by the increase in operating margin to about 19% this year, well above 13.9% in 2019. When companies are making money, it reduces the need for layoffs and provides cash that builds Gross Domestic Product (GDP) through capital spending and research and development. Companies also use cash for as dividends, which is good for investors. As such, the stock market is a leading indicator for the economy, albeit a fickle one. We keep things simple and look at the six-month return, which his encouraging at up about 14%. We now expect GDP to grow by 2.4% in 2026, up from our previous estimate of 2.2%. We are also raising our estimate for 2027 growth to 2.4% from 2.2% and debuting our estimate for 2028 GDP growth at 2.2%. Our case for continuing expansion is that unemployment is low and paychecks keep coming. Investment in artificial intelligence (AI) seems poised to continue as companies race each other and the U.S. races China. Based on the minutes of the September meeting of the Federal Open Market Committee, many central bankers saw financial conditions as being supportive of economic growth despite the rise in longer-term Treasury yields. Fed officials mentioned the benefits of rising stock prices as well as credit that is generally available to most households. The Fed also noted that real private domestic final purchases, which comprises the pillars of consumer spending and business investment, appear to have picked up notably in the first half of the year. The measure often provides a better signal of economic momentum than headline GDP. Based on the Atlanta Fed's GDP Nowcast on October 6, the measure was projected to rise 4.5% in 3Q.

On Wednesday, the mega-cap indices were pressured early, as further weakness in the bond market led to some anxious moments when the 10-year hit another high of 5.36%. Yields then settled down, however, and the major indices ended with only minor losses. Still, smaller stocks were weak by the close, with the S&P MidCap 400 down 1.6% and the S&P SmallCap 600 off 1.3%. These smaller-cap indices are trying to bottom, but both were turned back at initial resistance levels. The U.S. Dollar Index (USD $102.30) continues its strong rally, as the greenback has risen almost 4% since its intraday low on September 9. More importantly, the greenback broke out of a major base that started back in April 2025 and ran from $95.60 to $101.80. A measured move based on the size of the range targets the $106-$108 region. A 50% retracement of the bear market from January 2025 until January 2026 sits near $103, while a key 61.8% take-back targets $104.50 Both gold and silver are correlated very negatively with the dollar, last peaking almost exactly when USD bottomed in early 2026. GLD and SLV remain in severe drawdowns, and their recent weakness has aligned closely with dollar strength. The metals are approaching their bear-market lows hit a few months ago. The Commitments of Traders data remains negatively positioned and nowhere near the bullish levels seen in 2022/2023, when the bull market for metals started to percolate. Crypto has been hurt by dollar strength in the past but is holding up this time. Bitcoin has pulled back in recent days, but remains in an intermediate-term uptrend.

Kroger, based in Cincinnati, operated 2,698 retail supermarkets and multidepartment stores in 35 states at the end of FY26. We estimate that these stores generated over 90% of the company's $147.6 billion in sales in FY25. KR also operated 1,731 supermarket fuel centers, 33 food processing plants, and 43 distribution centers in the U.S. at the end of FY26. These plants produce about 31% of KR's private-brand units. The company's nameplates include Kroger, Ralphs, Fred Meyer, Food 4 Less, King Scoopers, Smith's, Fry's, Dillon's, City Market, and Harris Teeter. Some 11% of the supermarkets are in California, 8% are in Ohio, and 8% are in Texas. Walmart and Sam's Club are primary competitors in most major markets. KR has pharmacies in about 83% of its food stores. The company has 182 million square feet of supermarket space. Nonperishables represented 52% of FY25 sales, Fresh Foods were 25%, Supermarket Fuel was 10%, Pharmacy was 11%, and Other was 2%. We will update this after we review the annual report. The company's fiscal year ends on the Saturday closest to January 31. Kroger's fiscal first quarter is 16 weeks. The second, third, and fourth quarters are each 12 weeks. The current FY27 ends on January 31, 2027.