KROGER (KR) Q1 FY27 earnings call: guidance and Q&A

How will Kroger close the execution gap between its best and worst stores, and what is an acceptable food volume performance target for the business?

CEO Greg Foran stated that 2 out of 5 stores are in very good condition, 2 out of 5 are moderate, and 1 out of 5 needs improvement. Closing the gap involves being present in the business, working with division leaders, and using data. He noted that improving store performance can quickly impact sales. Regarding volumes, Kroger is seeing a meaningful break from traditional grocery competitors and aims to achieve positive unit growth, currently showing the best unit market share performance in 2-3 years.

“It's amazing how quickly you can get it turned around and the impact it has on sales.”

asked by John Heinbockel · answered by Gregory Foran

Given past pricing investments took years to impact sales, what is the expected timeframe for current initiatives, and is the value opportunity in the hundreds of millions or billions?

Greg Foran indicated it's too early to comment on specific timing or magnitude, promising more color at the October 20 investor update. CFO David Kennerley added that significant cost opportunities exist to fund price investments, stating that the cost savings are more than enough to afford necessary price investments.

“The thing that you guys should be thinking about is we've said it. We've got a very significant cost opportunity in the business to take cost out, and it's more than enough to be able to afford the price investments we need to make.”

asked by Simeon Gutman · answered by Gregory Foran

How far along are price investments, given they contributed to Q1 gross margin decline, and are they regionally focused or broader?

Greg Foran explained that price investments are being made thoughtfully and are funded by cost savings (COGS, goods not for resale, importing capability). He noted that the team is carefully managing pricing decisions with suppliers, deciding what price increases to pass on. He reiterated that more details would be shared in October.

“The comment around some price investment in the first quarter is, once again, we've been very thoughtful as we go through our negotiations with suppliers, as we deal with some suppliers who want to get price up, how much of that we will pass on.”

asked by Thomas Palmer · answered by Gregory Foran

Can management elaborate on the areas of cost opportunity and their potential size, especially in light of operational and cultural improvements?

Greg Foran stated there's no shortage of opportunities, both above (shrinkage, replenishment) and below (operational and general expenses, productivity) the gross margin line. David Kennerley added that work is already underway, with Q1 COGS savings 30% ahead of expectations, and savings are expected to ramp up throughout the year and endure over a multi-year period, being significant enough to fund affordability initiatives.

“There is a reasonably long list of things that are going to add up over time, which will fund what we want to do.”

asked by Krisztina Katai · answered by Gregory Foran

How can Kroger succeed without radical changes given competitors' non-grocery profit pools and labor model rigidity, and what drives the H2 profitability inflection?

Greg Foran expressed confidence in Kroger's format, locations, and product, highlighting its scale for e-commerce and retail media. He believes well-run supermarkets are resilient and can compete effectively. David Kennerley explained H2 confidence stems from ramping cost initiatives, continued sharpening of value, accelerating e-commerce profitability, and an expectation of increased inflationary pressure (within guidance range) later in the year.

“We've got the right format, generally in the right locations with the right size, selling the right product. People need to buy food.”

asked by Michael Lasser · answered by Gregory Foran

How is Kroger balancing the speed of price investment (slow vs. aggressive) and what are insights from current price tests?

Greg Foran emphasized threading the needle, balancing short-term and long-term goals, and ensuring stores are in good shape before aggressive pricing. The objective is not to match discounters but to achieve fair and reasonable prices to attract customers. He stated that the approach is surgical and thoughtful, not drastic, and that competitive responses are unknown. Price test details were not divulged but will inform future actions.

“The objective here is to get to a situation where customers feel comfortable that the price that they're getting when they shop in a Kroger store or a Kroger brand is actually fair and reasonable.”

asked by Edward Kelly · answered by Gregory Foran

What is the outlook for IRA and brand-to-generic shift headwinds in pharmacy for the rest of the year, and what are current trends?

David Kennerley confirmed the IRA's 130 bps sales headwind is playing out as expected and is profit-neutral. The 40 bps sales headwind from the brand-to-generic shift is actually profit-positive. Despite these, the pharmacy business is performing well, with core scripts and GLP-1s growing, and Kroger gaining share. Greg Foran added that underlying foundational trends are good, similar to the rest of the business.

“I think despite these pressures, honestly, the pharmacy business continues to do well. If you look at core scripts, GLP-1 performance, we're winning share.”

asked by Rupesh Parikh · answered by David John Kennerley

What specific consumer behaviors are observed across income cohorts due to higher gas prices and reduced SNAP benefits?

Greg Foran noted that SNAP impact is most pronounced in three specific states. Higher fuel prices lead to some trade-down in basket sizes and items, which likely benefits Our Brands. He concluded that Kroger is managing through these pressures effectively, based on share data and positive results, balancing profit and price appropriately.

“When that price gets up to what it has, I think we see that some of the basket sizes, some of the items that people buy tend to be traded down a bit.”

asked by Scott Marks · answered by Gregory Foran