Grocery store retail giant Kroger (KR) is laying off employees during a period when it appears to be divesting some of its business. It was recently announced that the company will lay off nearly 1,000 corporate employees, citing plans to redirect some of its savings.
On the other hand, the company’s dividend remains stable and continues to grow. It is set to pay a quarterly dividend of $0.35 per share on Sept. 1, which is an increase over the previous quarterly rate of $0.32 per share. Its forward annual dividend of $1.40 yields 2.06% on current prices.
As KR stock comes down from its highs, should you consider investing in Kroger’s dip?
About KR Stock
Kroger, founded in 1883 and headquartered in Cincinnati, Ohio, is one of the largest retail companies in the U.S. Operating thousands of supermarkets, multi-department stores, and convenience stores across the country, Kroger serves millions of customers each day.
Its operations encompass a diverse range of retail formats, including traditional grocery stores and marketplace stores that offer a broad selection of general merchandise, apparel, and home goods.
Kroger also owns numerous private-label brands and operates its own manufacturing facilities for food products, enhancing supply chain efficiency and product consistency. In addition to in-store shopping, the company has expanded its digital presence with online ordering, curbside pickup, and home delivery services. The company has a market capitalization of $44.93 billion.
Over the past 52 weeks, KR stock has gained 26.7%, while it has been up 10.3% year-to-date (YTD). The company’s shares reached a 52-week high of $74.90 on Aug. 11, but are down 9.8% from this high. Over the past five days, the stock has been down by 3%.
The company’s stock is currently trading cheap, with its price sitting at 18.69 times earnings, which is lower than the industry average of 22.79 times.
Kroger Reported Mixed Q1 Results
On June 20, Kroger reported its first-quarter results for fiscal 2025 (the quarter that ended on May 24). In that, the company reported a marginal year-over-year (YoY) drop in its sales to $45.12 billion. This figure fell short of the $45.38 billion that Wall Street analysts had predicted Kroger would report.
On the other hand, the company’s gross margin was 23%, compared to 22% for the same period in the previous year. The sale of Kroger Specialty Pharmacy primarily drove this margin expansion. However, the effect was offset by growth in pharmacy sales, which carry lower margins. Its adjusted EPS increased from $1.43 in Q1 FY2024 to $1.49 in Q1 FY2025. This was also higher than the $1.45 that Wall Street analysts were expecting.
During the first quarter, Kroger reported a $100 million impairment charge related to its decision to close approximately 60 stores within the next 18 months. The company anticipates a slight financial gain from these closures. However, instead of retaining the savings, Kroger plans to reinvest them in improving the overall customer experience. For the fiscal year 2025, Kroger expects its adjusted EPS to be in the range of $4.60 to $4.80.
Wall Street analysts are optimistic about Kroger’s future earnings. They expect the company’s EPS to climb by 7.5% YoY to $1.00 for Q2 FY2025 (which is set to be reported on Sep. 11). For the current fiscal year, EPS is projected to surge 6.5% annually to $4.76, followed by a 10.1% growth to $5.24 in the next fiscal year.
What Do Analysts Think About Kroger Stock?
Analysts are still optimistic about Kroger’s stock. Analysts at Roth Capital raised the KR's stock price target from $58 to $66, while maintaining a “Neutral” rating on its shares. Roth Capital analysts posit that while the outlook is sound, inflation pass-throughs remain a headwind. Analysts at Evercore ISI are soundly bullish. Evercore analyst Michael Montani maintained a “Buy” rating on the stock, with a price target of $82.
Analysts at J.P. Morgan changed KR’s rating from “Overweight” to "Neutral." J.P. Morgan analyst Thomas Palmer also cut the price target from $82 to $75, based on current market analysis.
KR stock is still popular on Wall Street, with analysts awarding it a consensus “Moderate Buy” rating overall. Of the 21 analysts rating the stock, 10 analysts have rated it a “Strong Buy,” while 11 analysts are playing it safe with a “Hold” rating. The consensus price target of $77.26 represents a 13.7% upside from current levels. However, the Street-high price target of $85 indicates a 25% upside.
While some tepid sentiments persist regarding the layoffs and closure of some of its stores, Kroger’s dividend and growing margins still appear attractive. Hence, investors might consider investing in it for the long term.
