Kroger Q2 Earnings Call Highlights

Kroger lowered its full-year identical-sales outlook to 0.2%–0.8% from 1%–2%, citing pharmacy headwinds, the Cyclospora produce outbreak, egg deflation and cautious consumer spending.

Second-quarter identical sales excluding fuel rose just 0.2%. Despite weaker sales, Kroger maintained adjusted FIFO operating-profit guidance of $5.0 billion–$5.2 billion and adjusted EPS guidance of $5.10–$5.30, supported by improved gross margins and cost-saving initiatives.

E-commerce, retail media and private-label products remained growth drivers: adjusted e-commerce sales rose 20%, retail media revenue increased 24%, and Private Selection sales grew more than 14%.

Kroger also repurchased about $1.2 billion of shares in the first half and expects its Giant Eagle acquisition to close in 2027, pending regulatory review.

Kroger reported modest second-quarter identical sales growth while maintaining its full-year profit outlook, as pharmacy-related pressures, a Cyclospora outbreak and cautious consumer spending weighed on the top line.

Identical sales without fuel increased 0.2% in the second quarter.

Chief Executive Officer Greg Foran said sales were tracking well before the company’s final reporting period, when the Cyclospora outbreak affected produce sales and reduced company identical sales without fuel by roughly 35 basis points.

Despite softer sales, the company reported adjusted earnings per diluted share of $1.09, up 5% from a year earlier. Adjusted FIFO operating profit was $1.1 billion.

Chief Financial Officer David Kennerley said several factors combined to create a 265-basis-point drag on identical sales without fuel during the quarter. Those included an approximately 140-basis-point impact from the Inflation Reduction Act, a 60-basis-point effect from customers shifting from branded to generic prescriptions, a 35-basis-point impact from Cyclospora in produce, and a 30-basis-point effect from lingering egg deflation.

Foran said customers continued to visit stores and shop online, with traffic increasing slightly during the period. However, ticket declined as shoppers remained “disciplined” in their spending, affected by factors including higher fuel prices and reduced SNAP benefits.

Natural foods, meat and seafood, and bakery delivered strong results, according to Kennerley.

Kroger also said it continued to outperform Circana’s “Rest of Market” benchmark of traditional grocery competitors and maintained the market-share gap it achieved in the first quarter.

The company lowered its full-year identical-sales-without-fuel outlook to a range of 0.2% to 0.8%, from previous guidance of 1% to 2%.

Kennerley said the revised forecast reflects first-half results and expected pressure through the rest of the year, including lingering Cyclospora effects in the third quarter.

In the fourth quarter, Kroger expects the pharmacy-related sales impact from the Inflation Reduction Act to rise to about 150 basis points as new high-cost drugs, including GLP-1 medications, are added to formularies in January.

The company also expects to cycle prior-year benefits from third-party delivery partnerships and weather-related sales in the fourth quarter.

Even with the lower sales outlook, Kroger maintained its full-year adjusted FIFO operating-profit guidance of $5 billion to $5.2 billion and adjusted EPS guidance of $5.10 to $5.30.

Its FIFO gross-margin rate, excluding rent, depreciation, amortization and fu...