Kroger Company
Sales of $34.621 billion also topped the $34.580 billion estimate.
Identical sales excluding fuel rose 0.2%, with customer traffic increasing both in stores and online.
During the earnings call, Kroger said a Cyclospora outbreak reduced identical sales by about 35 basis points, mainly due to weaker produce sales. Lower pharmacy drug prices created another roughly 140-basis-point drag.
Meanwhile, fuel prices above $4 pressured household budgets. Management said unit growth has slowed since the start of the year as SNAP benefit cuts and higher fuel costs push consumers toward more need-based purchases.
Food inflation was moderately higher than in the first quarter. Kroger also said additional fuel-rewards promotions helped boost demand at its pumps.
Earnings Snapshot
Natural foods, meat and seafood, and bakery performed well during the quarter.
Pharmacy trends remained healthy, supported by prescription growth and continued GLP-1 demand. However, the Inflation Reduction Act, branded-to-generic prescription shifts, Cyclospora and egg deflation created a combined 265-basis-point sales drag.
FIFO gross margin, excluding rent, depreciation and amortization and fuel, increased 13 basis points. E-commerce, retail media, pharmacy mix, tariff refunds and sourcing helped margins. Higher shrink, transportation costs and customer-value investments partly offset those gains.
Adjusted FIFO operating profit totaled $1.1 billion.
Kroger exceeded its cost-savings plan and expects further benefits from sourcing, procurement, simplification and productivity.
Fuel gallons outperformed the broader market by about 520 basis points, while fuel redemptions increased nearly 6%.
Kroger repurchased about $1.2 billion of stock during the first half under its $2 billion authorization. It expects to complete the remaining repurchases in the second half.
E-Commerce Growth Accelerates
Adjusted e-commerce sales rose 20%, marking a second consecutive quarter of profitable growth. New customers also increased 20% year over year.
Kroger is expanding faster delivery options, with a growing share of orders completed in less than an hour. The company expects e-commerce to drive most industry growth in the coming years.
Kroger added more than 600 natural and organic products during the quarter. It also launched grocery and prescription delivery with Instacart in August.
Retail media revenue increased 24%, its strongest growth since 2021, while monetization improved 88 basis points.
Private Selection sales climbed more than 14%. Kroger's brands also outpaced national brands, with penetration increasing about 50 basis points.
Kroger continues to expect its Giant Eagle acquisition to close in 2027, subject to regulatory review.
Outlook
Kroger reaffirmed fiscal 2026 adjusted EPS guidance of $5.10 to $5.30, compared with the $5.21 estimate.
The company expects second-half earnings growth to benefit from cost savings, pharmacy margins, improving e-commerce profitability and continued retail media growth.
However, Kroger lowered its full-year identical-sales growth forecast, excluding fuel, to 0.2% to 0.8% from 1% to 2%. The revised outlook reflects first-half performance and continued consumer pressures.
Cyclospora is expected to remain a third-quarter headwind, although trends are improving.
The Inflation Reduction Act is expected to create an approximately 150-basis-point sales drag in the fourth quarter as new high-cost drugs, including GLP-1s, enter the formulary in January. Kroger expects the pharmacy-related sales pressure to have no impact on profit in the fourth quarter or 2027.
Management expects third-quarter identical sales excluding fuel to be slightly stronger than in the fourth quarter.
KR Price Action: Kroger shares were up 3.04% at $58.68 at the time of publication Friday, according to Benzinga Pro data.
