Ross/MKM maintained its neutral rating on Friday. Kroger Co. The firm raised its price target on Kroger (NYSE:) shares to $52 from $50. The adjustment comes after Kroger’s second-quarter results beat expectations, but the firm expressed concerns about the sustainability of the grocery chain’s profit margins in the second half of the year.
Kroger reported a stronger-than-expected second quarter but lower profits compared to the same period a year ago. It improved its outlook for like-for-like sales growth excluding fuel, but left its earnings before interest and taxes (EBIT) and earnings per share (EPS) guidance unchanged.
Ross/MKM analysts are concerned that second-quarter inventory-adjusted profit margin growth, which came in at 0.42% year-over-year, may not continue into the second 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 decline of 1.2% – the lowest margin since July 2021. The entire industry is coming under increasing strain from increased competition and declining consumer health.
Considering these factors, Roth/MKM reiterated its neutral stance on Kroger shares and modestly raised its price target to $52.The firm’s analysis suggests that potential margin pressures warrant caution despite recent strong earnings performance.
In other recent news, The Kroger Co. reported a slight increase in second-quarter 2024 profits, demonstrating resilience amid economic challenges.
The grocery retailer saw its same-for-fuel sales increase 1.2%, digital sales up 11% and delivery solutions grow 17%. Despite the 3% decline, adjusted earnings per share (EPS) settled at $0.93 and the company’s gross margins improved. Kroger maintained its full-year guidance with a focus on sustainable growth and customer loyalty.
Additionally, BMO Capital reaffirmed its outperform rating and $60 price target on Kroger following the company’s second-quarter results. The firm highlighted the grocery retailer’s resilience in gross margins and continued momentum in same-item sales. BMO Capital also noted it is optimistic about Kroger’s profitability and suggested that a pending legal decision on an unspecified transaction could be a major catalyst for the company.
Additionally, the Kroger-Albertsons (NYSE:) merger is progressing and a $10.5 billion senior unsecured notes offering has commenced. The company’s recent moves demonstrate its focus on customer engagement and cost control, with the introduction of approximately 600 new products to its brand portfolio.
InvestingPro Insights
As Kroger Co (NYSE:KR) navigates a challenging market, InvestingPro’s data and tips can help you get a better understanding of the company’s financial health and its position in the industry. With a market capitalization of $40.29 billion and a price-to-earnings ratio of 18.8, Kroger has a significant presence in the market. The company’s revenue for the trailing twelve months through Q1 2025 reached $150.14 billion, showing modest growth of 0.89%, indicating a slow but steady expansion in sales.
InvestingPro Tips highlights that Kroger has a longstanding commitment to returning value to shareholders, having raised its dividend for 18 consecutive years and maintained its dividend payment for 19 consecutive years. This consistent performance is a testament to the company’s role as a major player in the consumer staples distribution and retail industry. However, investors should be aware that the company’s short-term liabilities currently exceed its current assets, which could lead to liquidity issues.
Additional insights are also available, including the company’s strong earnings over the past five years and profitability forecasts for this year, and there are 35 more InvestingPro tips on Kroger at https://www.investing.com/pro/KR These tips can help investors weigh the potential risks and opportunities when considering Kroger stock for their portfolios.
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