Kroger Earnings Reaffirm Our Position in This Holding
Amid a definitive consumer trend, this holding and our private-label names are well positioned.
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*Comments from Kroger about consumers trading down, keep us bullish on Costco
*Costco keeps us well-positioned with its Kirkland private-label brand
*Next week’s August Retail Sales should confirm that Costco continues to win wallet share
*Those gains and the recent membership price hike could lead to favorable EPS adjustments and price target increases
On Thursday night, Kroger reported favorable quarterly results, but we see them more as reaffirming our position in Costco COST. We say this because of the commentary served up by the Kroger management team about the consumer during the earnings call:
As we suspected several months ago, Kroger continues to lean into its private label offering, which has been a positive for Bullpen resident Tree House Brands THS:
While we admittedly missed the move in THS shares, we’re doing just fine thanks to our positions in Trade Desk TTD, Dutch Bros BROS, Builders FirstSource BLDR and others that we added to in May, June and early August. And let’s remember, through Costco, we have exposure to one of the largest private label brands, Kirkland, which according to Fortune is a $56 billion store brand, excluding gas. Think about that… that means that if Kirkland were a standalone company, that level of sales means it is larger than Nike NKE, Coca-Cola KO and United Airlines UAL. So, while we may have missed THS shares, we have that private label base covered.
When Costco reports on September 26, 2024, one area we’ll be focusing on as it relates to our price target is guidance for its membership fee revenue stream. Effective September 1, 2024, the company’s latest price increase took hold, and consensus EPS forecasts now are little changed compared to 60 days ago when Costco announced that long-awaited price hike. Our $950 price target is above the market consensus, and if we need to raise it again, we’ll reconsider our rating as needed.
Ahead of that earnings report, next week’s August Retail Sales report should confirm Costco continues to rake in consumer wallet share gains. And we could see some EPS adjustments following that report and before Costco’s earnings report.
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At the time of publication, TheStreet Pro Portfolio was long COST, TTD, BROS, BLDR.
