Supermarket chain Kroger Co. (KR) heads toward the end of 2025 under a cloud of investor skepticism. The grocery company has been pressured by fierce competition from other e-commerce giants like Walmart (WMT), cautious consumer spending, and continued struggles to make e-commerce truly profitable. And with the collapse of its long-awaited merger with Albertsons (ACI), management has been forced to adopt a damage control attitude. It announced plans to close about 60 underperforming stores and eliminate about 1,000 corporate jobs, a move that has weighed heavily on the stock.
But just when sentiment seemed stuck in the freezer aisle, Kroger provided a potentially powerful catalyst. On December 23, the company approved a $2 billion expansion of its share repurchase program, bringing total remaining repurchase capacity to about $2.9 billion. That’s a clear sign that management believes the stock is undervalued and sees strong cash generation going forward, even as the broader retail environment remains challenging.
In fact, since 2015, Kroger has repurchased approximately 35% of its outstanding shares, underscoring a long-standing commitment to rewarding shareholders. Chairman and CEO Ron Sargent reinforced that message, saying the new authorization reflects the board’s confidence in Kroger’s growth prospects and balance sheet. He also emphasized that the company is producing “durable free cash flow” and will fund buybacks using cash from operations and existing liquidity, while protecting its investment grade credit rating.
So, with this new commitment to shareholder returns now on the table, Kroger suddenly looks a lot more interesting than it did just a few weeks ago.
Kroger is one of America’s largest and longest-running grocery chains, dedicated to bringing fresh, affordable food and everyday essentials to millions of customers. Founded in 1883 and headquartered in Cincinnati, Ohio, Kroger operates more than 2,700 stores in 35 states under a variety of well-known brands, serving approximately 11 million shoppers each day, both in stores and online. The company’s retail presence includes supermarkets, department stores, fuel centers and pharmacies, and is supported by a broad portfolio of private brands that help differentiate its offerings and drive customer loyalty.
Kroger’s mission, focused on quality, value and convenience, has made it a staple in American communities and a major player in the US supermarket landscape. But despite its strong presence, the company’s stock has struggled in 2025. Currently valued at a market capitalization of $39.8 billion, the stock is up just 3.39% so far in 2025, well behind the broader S&P 500 index ($SPX), which has risen 17.8% in the same stretch.
In fact, the stock has fallen into negative territory, falling 5.68% over the past month after its early December earnings report failed to impress investors. Shares have now retreated nearly 18.4% from the 52-week high of $74.90 reached in August, underscoring sharply cooling sentiment. From a valuation standpoint, however, Kroger is looking increasingly compelling. The stock trades at just 13 times forward earnings and 0.27 times sales, both well below the sector medians of 15.8x and 1.03x, respectively.
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In addition to aggressive share buybacks, the company delivers cash directly to shareholders’ pockets through dividends. With an impressive 19-year streak of consecutive dividend increases, the stock has firmly established itself as an income option for long-term investors. Most recently, on December 1, the company paid a quarterly dividend of $0.35 per share, which equates to an annualized payment of $1.34 per share. At current levels, that translates into a compelling 2.13% dividend yield, a steady and reliable stream of income on top of capital returns.
Kroger’s third-quarter earnings, released Dec. 4, provided a mixed but telling snapshot of the supermarket giant’s momentum. While shares fell 4.6% that day, the underlying business showed steady progress. Revenue rose slowly to $33.9 billion from $33.6 billion a year ago, although it was slightly below Wall Street’s $34.3 billion forecast.
However, profitability moved in the right direction. Gross margin improved to 22.8% from 22.4% last year, driven by a combination of lower supply chain costs, reduced losses, strong performance by Kroger’s private brands and the sale of its specialty pharmacy business. These gains were partially offset by rapid growth in pharmacy sales, which typically have lower margins, and continued investments in pricing to remain competitive.
Additionally, Kroger kept its growth engine running. Identical sales increased to 2.6% from 2.3% a year earlier, demonstrating that customer traffic and basket sizes continue to increase in a challenging consumer environment. All in all, adjusted earnings per share rose 7.1% year over year (y-o-y) to $1.05, beating Wall Street’s estimate of $1.04.
Management struck an optimistic tone, highlighting the especially strong momentum in e-commerce. The company said its online business delivered another strong quarter and, after a complete strategic review, is now on track to be profitable by 2026, a major milestone that could reshape Kroger’s long-term growth story. Looking ahead, Kroger’s full-year 2025 guidance reinforces that confidence.
The company lowered its identical sales growth range to 2.8%-3% and raised the lower end of its EPS outlook to $4.75-$4.80, pointing to better-than-expected profitability. At the same time, Kroger reaffirmed its ability to generate $2.8 billion to $3 billion in free cash flow while continuing to invest $3.6 billion to $3.8 billion in capital expenditures.
Despite recent stock weakness, Wall Street remains constructive on Kroger. The stock has a consensus rating of “Moderate Buy,” with 11 of the 21 analysts following the company rating it a “Strong Buy,” while the other 10 recommend a “Hold.” This bias shows that bullish conviction still outweighs caution.
Price targets also paint an encouraging picture. Kroger’s average target of $75.40 suggests the stock could rise 19.2% from current levels, while the Street’s high target of $85 points to an upside of as much as 34.39% from here. For a defensive retail name with a new buyback catalyst, this is an attractive risk-reward setup.
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On the date of publication, Anushka Mukherji had no positions (either directly or indirectly) in any of the securities mentioned in this article. All information and data in this article are for informational purposes only. This article was originally published on Barchart.com
