Kroger's Store Closures: A Bold Move to Rebuild Retail Dominance

The grocery sector is a battlefield, with Amazon, Walmart, and dollar stores all vying for your wallet. But sometimes, the best offense is a ruthless defense. Kroger (KR) just announced plans to close 60 stores—5% of its U.S. footprint—over the next 18 months. On the surface, this looks like a retreat. But dig deeper, and you'll find a contrarian buy in the making: a company slashing underperforming assets to rebuild its crown jewels. This isn't a death knell—it's a strategic reset to fuel long-term growth. Let's break it down.

The Write-Downs Are Worth the Pain

Kroger will take a $100 million impairment charge in Q1 2025 to close these stores, but here's the kicker: this isn't a loss—it's an investment. By axing underperforming locations, Kroger is redirecting resources to stores with higher margins and customer traffic. The company claims the closures will provide a “modest financial benefit,” and with identical-store sales (excluding fuel) up 3.2% in Q1, the remaining stores are already proving their mettle.

The key metric here isn't the write-down itself—it's what comes next. Kroger's adjusted operating profit rose 1.3% to $1.52 billion, even as net income dipped due to the one-time charge. That's a sign of operational resilience. Meanwhile, gross margins expanded to 23% of sales, up from 22%, thanks to lower shrinkage, supply chain efficiencies, and the sale of its Specialty Pharmacy division.

The Efficiency Play: Kroger's Secret Sauce

Let's talk about the real game-changer: Kroger's cost discipline. The company is slashing OG&A (operating, general, and administrative) expenses by accelerating pension contributions and prioritizing investments in high-impact areas like e-commerce and fresh produce. Even better, the closures won't dent its full-year guidance for $4.7–$4.9 billion in adjusted operating profit or $4.60–$4.80 in EPS.

The numbers tell the story:
- E-commerce sales jumped 15% in Q1, a critical win in a sector where online grocery is exploding.
- Private-label sales continue to grow, offering higher margins and customer loyalty.
- Fresh produce and deli sections are getting a $3 billion investment over five years—think better displays, faster turnover, and more personalized shopping experiences.

This isn't just about cutting costs; it's about owning the future of grocery.

Why This Is a Contrarian Buy

Here's why Kroger is a steal right now:
1. Balance Sheet Brawn: Kroger's net debt-to-EBITDA ratio is 1.69, well below its target range of 2.30–2.50. That means it has room to borrow, invest, and grow without risking its investment-grade rating.
2. Shareholder-Friendly: Kroger's $7.5 billion share repurchase program is already $5 billion into execution, and it's maintaining its dividend. If the stock dips on closure fears, this becomes a buying opportunity.
3. Market Share Retention: Closing 5% of stores won't hurt Kroger's dominance in regions like the Midwest and South. In fact, by focusing on top-performing locations, it can boost foot traffic and loyalty at remaining stores.

The Bottom Line: Buy the Dip, Hold the Trend

Kroger is undergoing a painful but necessary transformation. The closures are a strategic move to exit low-margin stores, not a sign of weakness. With e-commerce booming, private brands thriving, and a balance sheet that can weather any storm, this is a stock primed for a rebound.

Backtest the performance of Kroger (KR) when buying on the announcement date of positive quarterly earnings and holding for 30 days, from 2020 to 2025.

If Kroger's stock slips further on the closure news—buy it. The dividend yield is a solid 1.8%, and the long-term thesis is clear: a leaner, smarter Kroger will dominate the grocery landscape.

Action Alert: Kroger's stock is a “hold” today, but a “buy” on any dip below $25. This is a classic contrarian play—pain now, profit later.

Disclosure: The author holds no position in Kroger at the time of writing. Analysis is based on public data and may not constitute financial advice.