Kroger has outperformed the S&P 500 in the past 12 months.
It experienced a slowdown in 2023, but its business resumed in 2024.
It expects it will continue to recover in 2025 even with new challenges.
Shares Kroger (Sneeze: kr) In the past 12 months, nearly 30% of the S&P 500 rate has been raised in the past 12 months. The largest supermarket operator in the United States dazzled the market with strong sales growth, resistance to huge headwinds and its effective digital strategies. It also increased its purchase after the planned merger Alberson (NYSE:ACI) It collapsed.
But can Kroger's stock continue to climb over the next 12 months as tariffs, trade wars and other unpredictable headwinds in the economy? Let's find out more deeply.
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Kroger's same sales (comparable sales, excluding fuel) rose only 0.9% in 2023, while the growth rate in 2022 was 5.6%. In the third and fourth quarters of 2023, its same sales also fell. This slowdown is caused by a combination of inflation, shrinkage and competition.
Rising inflation initially curbed consumer spending, but food inflation then reduced sales as inflation cooled. Increased competition has exacerbated this pressure, forcing Kroger to continuously improve his promotion. At the end with CignaExpress scripts in contract disputes at the end of 2022. Its adjusted earnings per share grew 8% in 2023, while its growth rate was 15% in 2022.
But in 2024, Kroger's same sales have changed positively again, digital sales have accelerated and its gross profit margin is stable. Over the entire year, its same sales grew by 1.5%, and its gross margin expanded 50 basis points to 22.3%, but its adjusted EPS fell by 6%.
| Metric system | Q4 2023 | Q1 2024 | Q2 2024 | Q3 2024 | Q4 2024 |
|---|---|---|---|---|---|
| Same sales growth* (YOY) | (0.8%) | 0.5% | 1.2% | 2.3% | 2.4% |
| Digital Sales Growth (YOY) | 10% | 8% | 11% | 11% | 11% |
| Gross profit margin | 22.3% | 22.4% | 22.6% | 22.9% | 22.7% |
| Adjustment for EPS growth (YOY) | 17.5% | (5.3%) | (3.1%) | 3.2% | 0% |
Source: Kroger. Yes = year-on-year. Excluding fuel sales and comparisons for week 53 of 2023.
Kroger stabilizes its sales and profits by selling higher-profit, high-margin, dedicated label products, strengthening its digital ecosystem and expanding its smaller areas of internal advertising and first-party health services. After the planned merger with Albertson collapsed in late 2024, it authorized a new $7.5 billion buyback program to boost its earnings per share.
Kroger expects its same sales (excluding fuel) to rise 2%-3% in 2025 as its adjusted EPS grew 3%-7%. Analysts expect their adjusted EPS to grow by 6%. It expects the catalyst to drive its recovery in 2024 and continue to generate headwinds in 2025. It also reached a new deal with Express Scripts in February to bring its pharmacy customers back to the store. In other words, most of its previous headwinds were dissipating.
But the Trump administration’s unpredictable tariffs and escalating trade wars may still undermine such recovery. Kroger believes it could mitigate the impact by keeping supplier bases away from higher tariff markets and simplifying its supply chain, but after an investigation into his personal behavior, its sudden departure of Rodney McMullen, CEO of its CEO Rodney McMullen, could impact those plans. Staples' former CEO Ron Sargent is currently its interim CEO.
Kroger may also need to modify its outlook if tariffs trigger recession and shortage of essential necessities. Kroger has suffered a lot of economic downturns since its IPO in 1928, and its huge network should be more efficient at experiencing these headwinds than smaller competitors, with the network’s more effective range of more than 2,700 stores (by its own brand and under other banners).
Analysts expect Kroger's adjusted EPS to rise 9%. At its current price of $71 per share, it's still cheap, with revenues of 14 times next year. It also paid a forward dividend yield of 1.8%, and raised payments for 18 consecutive years.
Assuming tariffs don't trigger a full-scale recession, Kroger's stock should be higher in the next 12 months. Its steady growth, broad moat, undervalues and commitment to boosting its dividend and buybacks still make it buy attractive stocks in this turbulent market.
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Leo Sun has no position in any of the stocks mentioned. Motley Fool recommends Kroger. Motley Fool has a disclosure policy.
Where will Kroger stock be in 1 year? Originally published by Motley Fool