Kroger has outperformed the S&P 500 over the past 12 months.
It experienced a slowdown in 2023, but its business recovered in 2024.
It expects that recovery to continue in 2025, even as it faces new challenges.
Shares of Kroger(NYSE: KR) rallied nearly 30% over the past 12 months as the S&P 500 advanced less than 10%. The largest supermarket operator in America dazzled the market with its robust sales growth, its resistance to macro headwinds, and its effective digital strategies. It also ramped up its buybacks after its planned merger with Albertsons(NYSE: ACI) collapsed.
But can Kroger's stock keep climbing higher over the next 12 months as tariffs, trade wars, and other unpredictable headwinds rattle the economy? Let's dig deeper to find out.
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Image source: Getty Images.
What happened to Kroger over the past year?
In 2023, Kroger's identical sales (comparable sales, excluding fuel) only rose 0.9%, compared to 5.6% growth in 2022. Its identical sales also declined in the third and fourth quarters of 2023. That slowdown was caused by a mix of inflation, deflation, and competition.
Rising inflation initially curbed consumer spending, but food deflation subsequently reduced its sales as inflation cooled off. Increased competition exacerbated that pressure by forcing Kroger to ramp up its promotions. Its pharmacy sales also declined after it ended its partnership with Cigna's Express Scripts over a contract dispute in late 2022. Its adjusted EPS increased 8% in 2023, compared to its 15% growth in 2022.
But in 2024, Kroger's identical sales turned positive again, its digital sales accelerated, and its gross margins stabilized. For the full year, its identical sales rose 1.5%, its gross margin expanded 50 basis points to 22.3%, but its adjusted EPS dipped 6%.
Metric
Q4 2023
Q1 2024
Q2 2024
Q3 2024
Q4 2024
Identical Sales Growth* (YOY)
(0.8%)
0.5%
1.2%
2.3%
2.4%
Digital Sales Growth (YOY)
10%
8%
11%
11%
11%
Gross Margin
22.3%
22.4%
22.6%
22.9%
22.7%
Adjusted EPS Growth (YOY)
17.5%
(5.3%)
(3.1%)
3.2%
0%
Data source: Kroger. YOY = Year-over-year. Excluding fuel sales and comparisons to a 53rd week in 2023.
Kroger stabilized its sales and margins by selling a higher mix of higher-margin private label products, strengthening its digital ecosystem, and expanding its smaller in-house advertising and first-party health services segments. After its planned merger with Albertsons collapsed in late 2024, it authorized a new $7.5 billion buyback plan to boost its EPS.
What will happen to Kroger over the next year?
For 2025, Kroger expects its identical sales (excluding fuel) to rise 2%-3% as its adjusted EPS increases 3%-7%. Analysts expect its adjusted EPS to grow 6%. It expects the catalysts which fueled its recovery in 2024 to keep generating tailwinds in 2025. It also reached a new agreement with Express Scripts this February to bring its pharmacy customers back to its stores. In other words, most of its previous headwinds are dissipating.
However, the Trump Administration's unpredictable tariffs and escalating trade wars could still disrupt that recovery. Kroger believes it can mitigate the impact by diversifying its supplier base away from higher tariff markets and streamlining its supply chains, but the abrupt departure of its CEO Rodney McMullen this March after an investigation into his personal conduct could impact those plans. Ron Sargent, the previous CEO of Staples, is currently its interim CEO.
Kroger would also likely need to revise its outlook if the tariffs spark a recession and shortages of basic necessities. On the bright side, Kroger has withstood plenty of economic downturns since its IPO in 1928, and its massive network of more than 2,700 stores (under its own brand and other banners) should weather those headwinds more effectively than its smaller rivals.
Where will Kroger's stock be in a year?
For 2026, analysts expect Kroger's adjusted EPS to rise 9%. At its current price of $71 per share, it still looks cheap at 14 times next year's earnings. It also pays a forward dividend yield of 1.8%, and it's raised that payout for 18 consecutive years.
Assuming the tariffs don't spark a full-blown recession, Kroger's stock should head higher over the next 12 months. Its stable growth, wide moat, low valuation, and its commitment to ramping up its dividends and buybacks still make it an attractive stock to buy in this turbulent market.
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