Citi has opened a short-term downside catalyst watch on Kroger (NYSE: KR) ahead of the grocer's second-quarter earnings report, scheduled for Sept. 11, saying an escalating price battle with Walmart could pressure comparable-store sales and margins.
The bank highlighted Walmart's approximately $3 billion tariff refund and noted that much of that amount is being funneled into lowering food and grocery prices to capture share. Citi contrasted that figure with Kroger's total reported EBIT of $5 billion as a way to illustrate the scale of the price investment relative to Kroger's profitability.
Analyst Paul Lejuez at Citi characterized the competitive environment as more pronounced than when Kroger last reported in the first quarter and suggested the effect may last longer than previously anticipated. He added that Walmart seeks vendor contributions to sustain price investments beyond the third quarter because suppliers are unlikely to cede the higher unit volumes that accompany lower retail prices.
For the second quarter, Citi models results roughly in line with expectations: identical-store sales up about 1% and earnings of $1.05 per share. Despite the in-line Q2 projection, the bank anticipates Kroger's management will adopt a more cautious tone for the back half of the year, prompting a reduction to the company's full-year comparable-store guidance and a narrower expected earnings range of $5.00 to $5.20.
Reflecting a more conservative view on gross margins amid intensifying competition, Citi trimmed its own full-year EPS estimate to $5.05 from $5.22 and lowered its 2027 forecast on the assumption that the competitive pressures will persist. The bank's internal traffic tracker showed Kroger customer visits decelerating to 0.4% in the quarter from 1.7% previously.
As a result of these developments and the weaker traffic signal, Citi reduced its price target on Kroger shares to $57 from $61.
Summary
Citi warned that Walmart's sizable price investment, supported by a tariff refund, could damp Kroger's comps and margins. While Q2 is modeled roughly in line, the bank expects management to guide more conservatively for the second half, and has lowered its own full-year and 2027 earnings forecasts. A slowdown in Kroger foot traffic and a reduced price target complete Citi's near-term assessment.