KR Dec 2024 55.000 call

Why the Kroger-Albertsons merger doesn't matter, analyst explains

Shares of Kroger (KR) are climbing after the grocery chain posted its second quarter earnings report and lifted the low end of its annual sales guidance. CFRA Research senior equity analyst Arun Sundaram joins Market Domination to dig into the earnings report and lay out the case for his Buy rating on the company. "I thought the quarter was really strong," Sundaram tells Yahoo Finance. Kroger's comparable sales grew 1.2% from its first quarter, and while its sales lag behind bigger competitors like Walmart (WMT) and Costco (COST), it is nonetheless "trending in the right direction." He also notes that the company is seeing improved margins, which he attributes to selling more of its private-label brands and a decrease in shrinkage. While Kroger's merger with Albertsons (ACI) remains pending, he argues that the company will benefit regardless of the outcome: "We actually believe that there's a greater chance that the deal does not go through. But regardless, we do believe that it's a win-win scenario for Kroger whether or not the deal goes through. If the deal does go through, I think, the merger will be immediately accretive to their earnings. And so there's probably upside to earnings estimates if the deal does go through. And if the deal doesn't go through, then I think Kroger could accelerate some share buybacks." As consumers continue to struggle with inflationary pressures, Sundaram explains that Kroger still remains in a solid position. He points to expanding margins as it sells both private-label and national brands. In addition, the company has been growing its alternative profit streams, like Kroger Precision Marketing, its retail advertising business. He notes that advertising has much higher margins compared to groceries, and is a testament to the fact that the company "can expand margins without just raising prices on groceries." For more expert insight and the latest market action, click here to watch this full episode of Market Domination. This post was written by Melanie Riehl