Kroger's (KR) strategy of self-funded price investments is prudent, but the degree of difficulty facing the project is also significant, Morgan Stanley said in a note Monday.
The cadence of Kroger's investments versus savings may lead to a H2-weighted outlook, the note said, adding the price investment strategy may also be a risk to the company's gross margins and credit.
The investment firm said, however, the company is seeing a sequential improvement in food units, which is an "encouraging early sign that the business has a running start."
Meanwhile, the company's Q2 will see some pressure from additional operating, general and administrative expenses like investments in wages, hours, and training, which "highlights the depth of this turnaround," the note said.
The investment firm said it lowered its estimates for Kroger's 2026 earnings per share by 1.2% to about $5.18, and it also decreased the retailer's 2027 EPS estimates by 2.8% to roughly $5.35 after the company's Q1 results.
Morgan Stanley has an equalweight rating on Kroger and lowered the company's price target to $67 from $73.
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