Kroger (KR, Financial) is experiencing significant gains, reaching multi-year highs after reporting impressive profitability in Q4 (Jan) and projecting this trend to continue through FY25 (Jan). Since its last earnings report in late November, Kroger has been on an upward trajectory, thanks to positive developments in Q3 (Oct) such as overcoming economic challenges, growing its household base—especially among digital users—and successfully reducing unnecessary costs. These factors contributed to Kroger's strong performance in the last quarter of its fiscal year and are expected to extend into FY25.
- Kroger's Q4 earnings saw a 35% year-over-year increase in adjusted EPS to $1.34, marking the company's largest beat in over five years, alongside a 6.4% rise in revenue to $37.06 billion. Identical sales excluding fuel dipped by -0.8%, aligning with forecasts. The company ended the year with a comp growth of +0.9%, at the upper end of its +0.6-1.0% prediction.
- Success in Q4 is attributed to Kroger's focus on four strategic pillars: fresh produce, private labels, seamless digital growth, and personalization. The company aims for an omnichannel consumer experience, seeking to increase digital sales and expand its store network. Digital sales grew by 12% year-over-year in FY24, with expectations for continued double-digit growth in FY25. Kroger also plans to open more stores in 2024 than in 2023.
- The omnichannel approach is crucial for long-term growth, with in-store and online customers spending three to four times more than those who only shop in-store.
- Kroger's $24.6 billion acquisition of Albertsons (ACI, Financial) is expected to significantly expand its physical presence. Despite challenges, including an FTC lawsuit, Kroger is confident in its ability to close the deal, leveraging its strong M&A history.
- The trend of consumers seeking value is also driving demand. United Natural Foods (UNFI, Financial) and SpartanNash (SPTN, Financial) have reported challenges competing with larger retailers as inflation drives customers to more affordable options. Kroger, while not as large as Walmart (WMT, Financial) or Costco (COST, Financial), is likely benefiting from this trend by attracting traffic from regional grocery stores.
- Looking forward, Kroger expects adjusted EPS of $4.30-4.50 and identical sales growth without fuel of +0.25-1.75%, with the midpoint of EPS projections exceeding analyst expectations.
Kroger's robust Q4 performance underscores the importance of value in the current inflationary environment, with competitors like WMT and COST also showing strong growth. BJ's Wholesale (BJ, Financial) is another example, with improved traffic and comp trends in Q4 (Jan). While the pending acquisition of Albertsons may introduce volatility, Kroger's ability to attract customers and balance cost-saving measures with strategic investments positions it well for continued success.
