Kroger Sells Vitacost in Minor Portfolio Cleanup Amid Persistent Overvaluation

What happened

Kroger has finalized the sale of its Vitacost.com subsidiary, an eCommerce health and wellness retailer, to iHerb, closing the transaction on January 8, 2026. This divestment aligns with the company's recent efforts to rationalize its portfolio, such as closing underperforming stores and pruning Ocado investments, as noted in the DeepValue report's discussion of capital allocation missteps. However, the report highlights that Kroger remains burdened by elevated leverage, with net debt/EBITDA at 2.76x and interest coverage of 2.18x, alongside unresolved legal overhangs from opioids and the failed Albertsons merger. The sale may generate modest proceeds to potentially reduce debt or bolster higher-margin areas like retail media, which contributed $1.35B in operating profit in 2024, but it is unlikely to significantly impact the core financials. Overall, this move represents a small step in streamlining operations but does not address the stock's rich valuation, trading at ~52x P/E and 87% above intrinsic value per DCF, reinforcing the 'WAIT' stance for investors.

Implication

For investors, this divestment underscores Kroger's ongoing shift toward core grocery and alternative profit streams, potentially freeing up resources for debt reduction or retail media growth. However, with net debt/EBITDA at 2.76x and interest coverage of 2.18x, balance-sheet stress persists, limiting flexibility in a competitive, low-growth industry. The sale does not resolve legal exposures from opioids or Albertsons litigation, which continue to cloud the equity story. Moreover, shares remain overvalued at 87% above intrinsic value, offering little margin of safety despite steady cash flows from private label and media. Consequently, the 'WAIT' recommendation holds, as investors should await a clearer de-risking of leverage or a more attractive entry point before considering a position.

Thesis delta

The sale of Vitacost aligns with Kroger's strategy to exit non-core assets and improve capital allocation, slightly supporting operational focus. However, it does not materially alter the key negatives of overvaluation, high leverage, or legal overhangs that underpin the cautious thesis. Therefore, no meaningful shift in investment stance is warranted, and the 'WAIT' rating remains appropriate.