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    KR
    Earnings call· Apr 2025(Q1 FY26)

    KROGER Q1 FY26 earnings call KR

    Jun 20, 2025 Source

    Executive summary

    Kroger Q1 FY26 — Strong Sales Growth, E-commerce Profitability Focus, and Strategic Store Network Optimization

    Kroger delivered solid Q1 FY26 results, driven by strong identical sales and e-commerce growth, while navigating a cautious consumer environment. The company is strategically optimizing its store network and focusing on accelerating e-commerce profitability and cost optimization under new leadership, aiming for long-term growth and improved shareholder value. The new CFO is prioritizing disciplined capital allocation and market share growth.

    Highlights

    5

    • Identical sales excluding fuel increased 3.2% in Q1 FY26.

    • Adjusted net earnings per diluted share was $1.49, an increase of 4% in Q1 FY26.

    • E-commerce sales grew 15% in Q1 FY26, achieving its best profit improvement quarter-over-quarter.

    • Our Brands sales grew faster than national brands for the seventh consecutive quarter in Q1 FY26.

    • Company retention rates, including store and overall, reached record levels in Q1 FY26.

    Concerns

    3

    • Fuel results were behind expectations in Q1 FY26 and are expected to be a headwind for the remainder of the year.

    • The e-commerce business is not yet profitable, despite significant improvements in Q1 FY26.

    • Approximately 60 underperforming stores are planned for closure over the next 18 months as part of network optimization.

    Guidance & targets

    10
    CategoryTargetConfidence
    Full-year FY26 identical sales without fuel growth
    2.25% to 3.25%
    high materiality
    High
    Q2 FY26 identical sales without fuel growth
    roughly at the midpoint of our full year guidance range
    medium materiality
    High
    Full-year FY26 Net operating profit and Adjusted EPS
    reaffirmed
    high materiality
    High
    Fuel impact on results
    headwind
    medium materiality
    High
    Store closures impact on full year guidance
    will not impact our full year guidance
    low materiality
    High
    ASR program completion
    by no later than the third fiscal quarter of 2025
    medium materiality
    High
    Open market share repurchases completion
    by the end of the fiscal year
    medium materiality
    High
    Balance of year FIFO gross margin rate and OG&A rate (underlying basis)
    remain relatively flat
    medium materiality
    High
    Grocery volumes
    sequential improvement throughout the year
    medium materiality
    High
    Inflation rate
    1.5% to 2.5%
    medium materiality
    High

    Operational metrics

    27
    Adjusted EPS
    $1.49up 4% YoY
    Q1 FY26

    Adjusted net earnings per diluted share.

    E-commerce sales growth
    15%YoY
    Q1 FY26

    Driven by strong demand in delivery.

    Our Brands sales growth
    grew faster than national brandsseventh consecutive quarter
    Q1 FY26

    Simple Truth and Private Selection led sales growth.

    FIFO gross margin rate
    increased 79 bpsYoY
    Q1 FY26
    FIFO gross margin rate
    improved by 33 bpsYoY
    Q1 FY26
    OG&A rate
    increased 63 bpsYoY
    Q1 FY26
    OG&A rate impact
    29 bps increase
    Q1 FY26

    Multi-employer pension contributions drove this increase in the OG&A rate.

    OG&A rate
    relatively flat
    Q1 FY26

    Underlying OG&A rate.

    Adjusted FIFO Operating Profit
    $1.5 billion
    Q1 FY26
    Fuel sales
    lowercompared to last year
    Q1 FY26
    Fuel gallons sold
    declinedcompared to last year
    Q1 FY26

    Gallon sales continue to outpace the industry.

    Fuel profitability
    behindsame period last year
    Q1 FY26
    Ocado letter of credit draw-down
    $152 million
    Q1 FY26

    Ocado drew down the entire amount from its letter of credit under the existing agreement on its seventh anniversary.

    Labor agreements ratified
    more than 23,000
    Q1 FY26

    New labor agreements ratified during the quarter.

    Labor agreements ratified
    approximately 16,000
    since Q1 close

    Includes Mid-Atlantic division and Seattle settlement.

    Average hourly wage
    more than $19.50
    Q1 FY26

    Grows to more than $25 with benefits like health care and pensions.

    Net total debt to adjusted EBITDA
    1.69xtarget range of 2.3x to 2.5x
    end of Q1 FY26

    Compared to the company's target ratio range.

    ASR program
    $5 billion
    FY26

    The Accelerated Share Repurchase program is being completed under Kroger's $7.5 billion share repurchase authorization.

    Share repurchase authorization remaining
    $2.5 billion
    FY26

    Remaining authorization for open market share repurchases after ASR completion.

    Inflation rate
    slightly below 2%in line with expectations
    Q1 FY26

    Inflation rate observed in the first quarter.

    E-commerce households
    growing
    Q1 FY26

    Attracting new households and increasing orders per household.

    In-stock rates
    improved
    Q1 FY26

    Improved in-stock rates across all divisions.

    Company retention rates
    reaching record levels
    Q1 FY26

    Both store and company retention rates.

    Number of products with lowered prices
    more than 2,000
    YTD FY26

    Part of efforts to keep prices low and simplify promotions.

    E-commerce profit improvement
    best profit improvement yetquarter-over-quarter basis
    Q1 FY26

    Increased rate of profit improvement from the previous record in Q4 FY24.

    GLP-1 prescription growth
    good growth
    Q1 FY26

    Also organic script growth in non-GLP-1 prescriptions.

    ESI impact on sales
    less than 10 bps
    Q1 FY26

    Very minimal impact to the quarter from Express Scripts.

    Industry KPIs

    9
    MetricValueDetails
    Sg a rateincreased 63 bpsbps
    Gross margin driversincreased 79 bpsbps
    Fuel gas station economicsdeclinedgallons sold
    Warehouse store club count30projects
    Comparable same store sales3.2%%
    E commerce digital sales growth15%%
    Advertising retail media revenuehealthy rate
    Private label own brand penetrationgrew faster than national brands
    Category level comps and inflation deflationslightly below 2%%

    Product announcements

    1
    ProductTypeDetails
    Simple Truth protein productslaunch

    Capital programs

    3
    Major storing projectson track to complete

    On track to complete 30 major storing projects in 2025, focusing investments in high-growth areas.

    New store openingsexpect to accelerate
    Start: 2026

    Benefit: growing overall square footage and adding new jobs

    Expect to accelerate new store openings in 2026 and beyond in high-growth geographies, with the number of openings being north of 30 per year.

    Store network optimization (closures)announced plans to close
    Start: Q1 FY26

    Benefit: make the company more efficient

    Plans to close approximately 60 underperforming stores across the country. This will have a modest financial benefit, which will be reinvested into the customer experience, not impacting full-year guidance.

    Risks & headwinds

    4
    Fuel resultsQ1 FY26 and remainder of the year

    behind expectations; headwind to results

    Mitigation: Not explicitly stated, but fuel rewards are part of loyalty strategy.

    Uncertain economic environment / cautious consumer spendingQ1 FY26 and throughout the year

    Consumer confidence is down; customers looking for value; discretionary spend softer in snacks, adult beverages, pet, general merchandise.

    Mitigation: Offering compelling promotions, fuel rewards, Our Brands products, personalized promotions, simplifying promotions, lowering prices on 2,000+ products.

    Changing environment around tariffsQ1 FY26 and going forward

    not had a material impact on our business so far; do not expect them to going forward

    Mitigation: Business model flexible, domestic food retailer, proactively looking for ways to avoid raising prices, pushing back on suppliers, discontinuing some items where it doesn't make sense.

    Ongoing labor negotiations with UFCWQ1 FY26 and ongoing

    Associates at King Soopers stores in Denver Metro, Pueblo, and Colorado Springs chose to strike for 14 days during the first quarter.

    Mitigation: Working to reach a fair and balanced agreement that rewards associates and keeps groceries affordable.

    What to watch in Q2 FY26

    5

    E-commerce profitability

    Next quarter (Q2 FY26)
    CurrentNot profitable, but 'best profit improvement yet' in Q1 FY26.
    TargetContinued acceleration of profitability improvement.

    Why it matters

    E-commerce is a key growth driver, and achieving profitability is a stated priority for the new CFO and reorganized unit.

    But to be clear, on the profitability, we're not profitable at this point. And we must become profitable in our commerce business, and we've got a lot of work to do.

    Q&A highlights

    6

    How is Kroger thinking about price gaps and investing in lower prices, and can this be done in a margin-neutral way?

    Management stated the competitive pricing environment remains rational. They are investing in lower prices (2,000+ items) and simplifying promotions. They believe Q1 was more competitive than Q4 and expect to continue price investments on a margin-neutral basis, leveraging gross margin performance.

    “I think this quarter is a good example. We've got decent gross margin performance. And as we look to improve our price perception through the balance of this year and beyond, we expect to do this on a margin-neutral basis.”

    asked by Edward Kelly · answered by Ronald Sargent, David John Kennerley

    2 min read6 chapters

    Detailed Narrative

    01

    New CEO Priorities and Strategic Shifts

    Interim CEO Ron Sargent outlined his core priorities: positioning Kroger for long-term growth, accelerating top-line sales, and running great stores. This involves a strategic shift to direct investments towards core business projects with high returns, reviewing noncore assets, and aggressively reducing costs to reinvest in lower prices and improved store operations. The company is also restructuring its leadership team to enhance speed and customer focus, aiming to create a growth culture.

    02

    E-commerce Reorganization and Profitability Focus

    Kroger has created a new e-commerce business unit, consolidating all online customer experience functions under Chief Digital Officer Yael Cosset. The objective is to improve order accuracy, delivery speed, and reduce pickup wait times, which is attracting new households and growing the business by 15%. While e-commerce profitability improved significantly in Q1, it is not yet profitable, and the team is comprehensively reviewing operations to drive greater efficiency and profitability, including deploying new technology and accelerating retail media.

    03

    Store Network Optimization and Growth

    The company announced plans to close approximately 60 underperforming stores over the next 18 months, a decision deferred during the merger process. This move is expected to improve efficiency, with affected associates offered roles in other stores, and will not impact full-year guidance as efficiencies will be reinvested. Concurrently, Kroger plans to accelerate new store openings in 2026 and beyond, focusing on high-growth geographies and larger format 'marketplace' stores to drive market share gains.

    04

    Customer Value and Pricing Strategy

    In response to cautious consumer spending and demand for value, Kroger is enhancing its value proposition through compelling promotions, fuel rewards, and its 'Our Brands' portfolio, which continues to outperform national brands. The company has lowered prices on over 2,000 additional products this year and is simplifying promotions to make savings more accessible. Management expects to continue these price investments on a margin-neutral basis, leveraging sourcing savings and private label mix.

    05

    Associate Engagement and Productivity

    Investments in associate wages and benefits, including an average hourly rate exceeding $19.50 (over $25 with benefits), and technology such as a virtual AI assistant, have resulted in record retention rates for both store and company-wide associates. These investments are contributing to improved in-stock levels across all divisions, enhancing the customer experience and driving sales.

    06

    New CFO Priorities and Financial Strategy

    David Kennerley, Kroger's new CFO, outlined his immediate priorities: disciplined capital allocation to maximize return on invested capital, comprehensive cost optimization across direct and indirect expenses, accelerating e-commerce profitability, and driving profitable market share growth. The company maintains a strong balance sheet with a net total debt to adjusted EBITDA of 1.69x, well below its target range, providing flexibility for investments and shareholder returns, including a $5 billion ASR program.

    AI-generated summary of the company’s earnings call. Not investment advice.