Q2 Report on Tap
Shares of Kroger have gained about 11% this year and are currently trading above their 52-week average price of $64.49. The company has consistently returned cash to shareholders through dividends and buybacks over the years, making the stock an attractive investment despite its relatively high valuation.
Q1 Outcome
In the first quarter, net sales remained broadly unchanged year-over-year at $45.12 billion. Identical sales, without fuel, increased by 3.2% in Q1, and e-commerce sales grew by 15%. Sales fell short of expectations, in line with the recent streak of underperformance. On an adjusted basis, Q1 earnings increased to $1.49 per share from $1.43 per share in the corresponding period of fiscal 2024. Net income was $866 million or $1.29 per share in the first quarter, compared to $947 million or $1.29 per share a year earlier. Gross margin moved up to 23% from 22% in the year-ago quarter. Earnings surpassed expectations, continuing the long-term trend.
From Kroger’s Q1 2025 earnings call
“We are reassessing our capital allocation strategy to make sure we are spending our capital on projects that offer the highest returns. We are reviewing our non-core assets. We’re aggressively looking for ways to reduce costs throughout the company, and we expect to reinvest those cost savings directly into lower prices and additional store hours for our associates so that they can better serve customers. Finally, we have restructured our leadership team to ensure we have the right talent in place.”
What to Expect
Recently, Kroger raised its identical sales growth guidance for fiscal 2025 to 2.25-3.25%, without fuel, while reaffirming full-year adjusted earnings per share guidance in the range of $4.60 to $4.80. It continues to expect adjusted free cash flow to be between $2.8 billion and $3.0 billion in FY25. The company said it expects to keep generating strong free cash flow and invest in the business to drive long-term sustainable profit growth.
A few months ago, the company suffered a setback after the court blocked its $25-billion merger with Albertsons, citing antitrust concerns. Following that, the management announced an extensive layoff that could affect hundreds of corporate employees, as part of restructuring the administrative team. It is on a cost-optimization drive, aimed at improving operational efficiency and enhancing customer experience through additional investments.
After retreating from last month’s all-time highs, Kroger’s stock has maintained a downtrend, declining about 8%. On Monday, the stock opened almost flat and traded slightly higher in the early hours of the session.