Kroger To Gain From Long-Term Margin Support, Higher Customer Visits - Analyst Sees 'Attractive Entry Point'

BofA Securities analyst Robert F. Ohmes reiterated the Buy rating on Kroger Company KR, with a price objective of $70.

Yesterday, the company reported first-quarter earnings results, recording an adjusted FIFO operating profit of $1.499 billion. Quarterly sales totaled $45.3 billion, compared to $45.2 billion a year ago.

Kroger saw increased total/loyal households and customer visits during the first quarter, as it continues to provide affordable prices and personalized promos, Ohmes notes.

The analyst maintains 2025 adjusted EPS of $4.45 (in line with the company’s reiterated guidance for $4.30-4.50). According to Ohmes, this reflects first quarter upside as well as pharmacy profitability headwinds that are now expected to carry over into the second quarter.

The analyst projects second-quarter adjusted EPS of 91 cents, which is down 6% year over year.

Despite the expected pharmacy pressure that is now expected in the second quarter, Kroger still expects overall gross margin trends to improve versus the first quarter and full-year FIFO gross margin to be flat on a year-over-year basis.

Per Ohmes, this reflects Kroger’s continued cost savings execution as well as long-term margin drivers that remain intact, including alternative profit streams, Our Brands, and Fresh.

Overall, the analyst sees further support for Kroger’s market share trends from strong digital and in-store execution, long-term margin support from growth in alternative profit streams, improving digital profitability, and cost savings execution.

BMO Capital Markets analyst Kelly Bania maintained the Outperform rating on Kroger, with a price forecast of $60.

While the second quarter was guided down on continued pharmacy and incentive comp pressures, the analyst estimates quarter-to-date fuel profitability has flipped to a tailwind, while grocery trends have continued to improve from the first quarter, with fundamentals supporting further acceleration into the second half of the year.

Per Bania, gross margins could prove more stable-than-feared, plus there is a potential for EPS accretion under a deal or no-deal scenario with Albertsons Companies, Inc. ACI.

Overall, Kroger’s positioning in the industry may allow it to continue managing the competitive environment with a stable gross margin percentage.

Therefore, Bania sees an attractive entry point for Kroger shares due to potentially exaggerated price investment fears.

Price Action: KR shares are trading lower by 0.53% to $50.01 at last check Friday.

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