Kroger Earnings: 2024 Finishes on Strong Note, and 2025 Expectations Look Reasonable

We plan to raise our $59 fair value estimate for no-moat Kroger by a low-single-digit percentage following the fiscal 2024 fourth-quarter earnings release. Results looked strong as identical sales excluding fuel expanded 2.4%, slightly outpacing our 2% forecast and the 1.7% average annual growth in food at home inflation from November 2024 to January 2025, per the Bureau of Labor Statistics. Encouragingly, growth was underpinned by an uptick in both traffic and average ticket. Management also cited 11% growth in digital sales (about 9% of total revenue). While we suspect online orders remain margin-dilutive due to the added fulfillment costs involved, we commend the retailer for adapting to consumers’ evolving purchasing habits. Also, a larger digital presence should translate into faster growth from alternative profit streams such as media and advertising over time: Management cited 17% growth in media revenue for the full year while alternative profits represented nearly 30% of Kroger’s operating income.