Nathaniel StoneSaturday, Jun 21, 2025 6:40 pm ET

15min read

Kroger (KR) has emerged as a compelling contrarian play in the consumer staples sector, buoyed by Q1 2025 results that underscore its ability to navigate macroeconomic headwinds while advancing key strategic initiatives. Despite modest total sales declines, Kroger's adjusted metrics—including identical sales growth, margin improvements, and e-commerce momentum—paint a picture of a retailer repositioning for long-term resilience. Yet, challenges such as leadership transitions and margin pressures linger, demanding a nuanced assessment of its investment thesis.

Kroger's Q1 2025 sales totaled $45.1 billion, down slightly from $45.3 billion in the prior year, largely due to the divestiture of its Specialty Pharmacy business. However, adjusted identical sales (excluding fuel) surged 3.2%, a stark improvement from last year's 0.5% gain. This growth reflects strategic focus areas:
- : Sales jumped 15%, driven by improved fulfillment and customer adoption of digital platforms.
- : Kroger's “Our Brands” initiative continues to gain traction, offering a margin-friendly alternative to national competitors.
- : Strong performance in these higher-margin categories offset lower-margin pharmacy sales, which contributed to a 79 basis point improvement in FIFO gross margins.

The company also raised its full-year identical sales guidance to 2.25%–3.25%, signaling confidence in its ability to sustain momentum.

Kroger's operational playbook is centered on , with three pillars driving its resurgence:

Despite operational progress, Kroger faces headwinds:

Kroger's stock has underperformed the sector in recent quarters, offering a valuation discount that could reverse as its initiatives bear fruit. Key arguments for a long position:

Backtest the performance of Kroger (KR) when 'buy condition' is triggered on the day of quarterly earnings announcements, and 'hold for 20 trading days', from 2020 to June 2025.

Kroger's Q1 results and strategic moves suggest it is on the right path to becoming a leaner, more customer-focused retailer. While risks like leadership transition and litigation linger, the company's defensive profile, margin improvements, and e-commerce growth make it a compelling pick for investors willing to look past short-term noise. For a contrarian investor, KR's valuation and strategic clarity position it as a top pick in the consumer staples sector—if management can execute its vision through the transition period.

Consider a gradual position-building strategy, with a focus on dips below $25, while monitoring macro risks and leadership developments.