On Friday, Roth/MKM maintained a Neutral rating on Kroger Co (NYSE:) shares, while increasing the price target to $52 from $50. The adjustment follows Kroger’s second-quarter performance, which surpassed expectations. However, the firm expressed concern over the sustainability of the grocery chain’s profit margins in the second half of the year.
Kroger reported a stronger second quarter than anticipated, yet year-over-year earnings are on the decline. Despite an improved forecast for higher identical sales excluding fuel, the company’s earnings before interest and taxes (EBIT) and earnings per share (EPS) guidance remain unchanged.
Analysts at Roth/MKM are apprehensive that the margin growth experienced in the second quarter, which saw a 0.42% year-over-year increase when adjusting for inventory, may not persist into the latter half of the year.
Additionally, the August Food Retail Margin Producer Price Index (PPI), a measure of gross margins within the industry, showed a year-over-year decrease of 1.2%. This marks the weakest margin performance since July 2021. The industry as a whole is under mounting strain due to intensified competition and diminishing consumer health.
In light of these factors, Roth/MKM reiterated their Neutral stance on Kroger’s stock while modestly lifting the price target to $52. The firm’s analysis suggests caution due to potential margin pressures, despite the recent earnings outperformance.
In other recent news, Kroger Co. reported a modest increase in its second-quarter earnings for 2024, demonstrating resilience amidst economic challenges.
The grocery retailer saw a 1.2% increase in identical sales excluding fuel, an 11% rise in digital sales, and a 17% growth in delivery solutions. Despite a 3% decrease, adjusted earnings per share (EPS) settled at $0.93, while the company’s gross margin rate improved. Kroger maintains its full-year guidance, focusing on sustainable growth and customer loyalty.
In addition, BMO Capital reaffirmed an Outperform rating and a price target of $60.00 for Kroger, following the company’s second-quarter results. The firm highlighted the grocery retailer’s gross margin resilience and continued momentum in identical sales. BMO Capital also noted optimism about Kroger’s earnings potential, suggesting that a pending legal decision regarding an unspecified deal could serve as a significant catalyst for the company.
Furthermore, Kroger’s merger with Albertsons (NYSE:) is progressing, with a $10.5 billion senior unsecured notes offering launched. The company’s recent developments indicate a focus on customer engagement and cost management, with nearly 600 new products introduced in the Our Brands portfolio.
InvestingPro Insights
As Kroger Co (NYSE:KR) navigates a challenging market, InvestingPro data and tips provide a deeper look into the company’s financial health and industry position. With a market capitalization of $40.29 billion and a P/E ratio that stands at 18.8, Kroger demonstrates significant presence in the market. The company’s revenue over the last twelve months as of Q1 2025 reached $150.14 billion, with a modest growth of 0.89%, indicating a steady, albeit slow, top-line expansion.
InvestingPro Tips highlight Kroger’s long-standing commitment to shareholder returns, having raised its dividend for 18 consecutive years, and maintaining dividend payments for 19 consecutive years. This consistent performance is a testament to its role as a prominent player in the Consumer Staples Distribution & Retail industry. However, investors should note that the company’s short-term obligations currently exceed its liquid assets, which could present liquidity challenges.
With additional insights available, such as the company’s strong return over the last five years and predictions of profitability this year, there are 35 more InvestingPro Tips for Kroger on https://www.investing.com/pro/KR. These tips could help investors weigh the potential risks against the opportunities as they consider Kroger’s stock for their portfolios.
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