Kroger lowered its full-year sales outlook Friday as financially pressured consumers bought fewer items per trip, even as the supermarket operator reported higher second-quarter profit and maintained its earnings forecast.
The Cincinnati-based retailer said identical sales excluding fuel increased just 0.2% during the quarter ended Aug. 15, slowing sharply from 3.4% a year earlier and falling below analysts’ expectations. Kroger now expects identical sales excluding fuel to increase 0.2% to 0.8% for fiscal 2026, down from its previous forecast of 1% to 2%.
The revised outlook reflects a more difficult consumer environment as inflation and economic uncertainty continue to pressure household budgets, particularly among middle- and lower-income shoppers.
“Customers remained under pressure and that has affected the industry broadly,” CEO Greg Foran said during the company’s earnings call, adding that unit growth has slowed since the beginning of the year.
Total second-quarter sales increased approximately 2% to $34.6 billion. Kroger reported net earnings of $641 million, or $1.05 per diluted share, compared with $609 million, or 91 cents per share, a year earlier. Adjusted earnings were $1.09 per share, ahead of the $1.06 expected by analysts.
Operating profit totaled $971 million, while adjusted FIFO operating profit was $1.08 billion.
Guidance Is Unchanged
Kroger maintained its full-year adjusted earnings guidance of $5.10 to $5.30 per diluted share and adjusted FIFO operating profit forecast of $5 billion to $5.2 billion. The combination of weaker sales expectations and unchanged profit guidance points to the importance of cost controls and Kroger’s higher-margin businesses as the company works through a softer sales environment.
Digital remained a bright spot. Adjusted e-commerce sales increased 20% during the quarter, while profit from Kroger Precision Marketing, the retailer’s media business, increased 24%. Kroger said improved e-commerce profitability, cost savings and strong pharmacy and fuel performance helped drive a 5% increase in adjusted earnings per share.
Several unusual factors also weighed on Kroger’s sales performance.
The company said the lingering effects of a cyclospora outbreak associated with produce reduced identical sales excluding fuel by approximately 35 basis points during the quarter. Lower egg prices also pressured sales comparisons.
Changes stemming from the Inflation Reduction Act are having a larger effect on Kroger’s pharmacy business. The company said its revised full-year identical-sales forecast incorporates an approximately 140-basis-point headwind from lower prescription drug prices resulting from the law.
Increased Traffic, Shrinking Baskets
Despite those pressures, customer traffic increased during the quarter, according to the company. Shoppers, however, put fewer items in their baskets — another indication that consumers remain focused on managing the size of their grocery bills. Kroger also said customers increasingly used its fuel rewards program as gasoline prices climbed.
The results arrive as Foran, who became CEO in February, moves ahead with an operational overhaul centered on stores, pricing, sourcing, digital growth and simplification. Kroger recently hired former Walmart and Asda executive Mark Ibbotson as executive vice president and chief store operations officer, effective Sept. 14.
Kroger also continued returning cash to shareholders. The company repurchased $1 billion of its shares during the second quarter and $1.2 billion year to date. It raised its dividend 11% earlier this year, marking its 20th consecutive annual dividend increase.
The company plans to provide additional details about its strategic initiatives and longer-term financial targets at an investor update Oct. 20.
For Kroger, the quarter ultimately presented two different pictures: a consumer who is becoming increasingly careful about what goes into the basket, and a retailer that so far has been able to protect profitability despite that slowdown.