While Wall Street Worries, This Cheap Warren Buffett Consumer Stock Is a Screaming Buy

Kroger reported first-quarter same-store sales (ex-gasoline) up 1% and guided comps to rise 1% to 2% for 2024, but GAAP gross margin fell 30 bps to 22.7%. The new CEO (Greg Foran) plans broad-based price cuts to grow market share, aiming to offset margin pressure via supplier cost pressure and efficiency. Shares have underperformed, down 16.1% over the past year vs. the S&P 500 up 19.3%, while valuation has improved (P/S down from 0.35 to 0.25).

Analysis

The real signal is not that pricing is getting more aggressive; it is that grocery is entering a period where share gains will likely be bought with margin dollars. That tends to favor the lowest-cost operators because they can defend price without sacrificing unit economics, while mid-tier grocers get trapped between traffic retention and profitability. In that setup, KR can win trips to the store but lose the equity story if the market concludes the new strategy is just trading revenue quality for lower-margin volume.

The second-order read-through is that supplier negotiations become the battleground, not shelf tags. If KR leans harder on vendors, the near-term pressure migrates upstream into CPG and fresh-food suppliers, but that relief is finite; once vendor concessions are exhausted, gross margin becomes the release valve. WMT is structurally better positioned to absorb a price war because it has scale, data, and a broader basket to cross-subsidize traffic, while AMZN can opportunistically take share on convenience and online fill-ins without needing grocery to be a standalone profit engine.

This is a low-conviction fundamental catalyst, not a memo to chase the stock. The next 1-3 months matter more than the next 1-3 years: if KR’s comps remain only modestly positive while margin slips another 20-30 bps, the market will re-rate the name back toward a low-multiple utility-style valuation rather than a turnaround story. The contrarian miss is that ‘cheap’ is not a catalyst when the business is structurally promising to spend the savings on price.

Key Decisions for Investors

• Pair trade: long WMT / short KR for 1-3 months into the next earnings cycle. Rationale: WMT can match price investment with less margin damage; KR bears the clearer downside if the market sees a price-war-driven margin reset. Falsify if KR gross margin stabilizes or WMT commentary turns defensive on food pricing.
• If KR rallies on turnaround optimism, fade it tactically with a short into strength rather than into weakness. The thesis only works if management shows both accelerating comps and a stable gross margin; if either disappoints, the multiple should compress again.
• Use KR as an alert, not a conviction long, until there is proof that lower prices are generating durable traffic without further 20-30 bp margin erosion. Missing data to confirm: next quarter gross margin bridge, vendor funding language, and customer count/transaction trend.
• Remain neutral BRK.B/BRKA here; Berkshire ownership is not an independent catalyst and does not offset grocery-level margin risk. No action unless the stock disconnects materially from fundamentals on index-flow demand.