Kroger reports Q2 adjusted EPS of $1.09

Kroger (NYSE: KR ) released second-quarter financial results and hosted an earnings call on Friday. Read the complete transcript below. APIs provide real-time access to earnings call transcripts and financial data. Visit to learn more.

The full earnings call is available at Summary Kroger Co. 09. The company is focusing on enhancing e-commerce, retail media, and its private label brands, with e-commerce sales growing 20% and retail media up 24% in the quarter. Kroger plans to acquire Giant Eagle, expecting the transaction to close in 2027, and is continuing its strategic focus on cost savings to reinvest in customer value and maintain competitive pricing.

8%, but maintained its adjusted operating profit forecast, citing cost-saving measures. Management highlighted successful recruitment for key executive roles and emphasized ongoing improvements in store operations, customer value, and e-commerce capabilities. Full Transcript OPERATOR Good morning and welcome to the Kroger Co. second quarter 2026 earnings conference call.

After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one. To raise your hand to withdraw your question, press star one again. Please note this event is being recorded.

I would now like to turn the call over to Rob Quast, Vice President, Investor Relations. Please go ahead. Rob Quast, Vice President, Investor Relations Good morning. Thank you for joining us for Kroger's second quarter 2026 earnings call.

I am joined today by Kroger's Chief Executive Officer Greg Forin and Chief Financial Officer David Kennerly. Before we begin, I want to remind you that today's discussions will include forward-looking statements. We want to caution you that such statements are predictions and actual events or results can differ materially. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis is contained in our SEC filings.

The Kroger Company assumes no obligation to update that information after our prepared remarks. We look forward to taking your questions. In order to cover a broad range of topics from as many of you as we can, we ask that you please limit yourself to one question. I will now turn the call over to Greg.

Rodney McMullen, Chairman and CEO Thank you, Rob, and good morning, everyone. This quarter reinforced my view that we are pointed in the right direction. As I reflected on our performance in the quarter, I'm pleased with our e-commerce and retail media results. I'm pleased with the growth of our brands, especially in health and wellness and organic.

I'm pleased with the new talent we've recruited to build America's favorite grocer. I'm pleased with the improvement in value we are delivering customers and the cost savings which are funding this. Most importantly, I'm pleased with our continued progress on share. Turning to our results, sales were tracking well through the quarter until our final period when we absorbed the impact of the Cyclospora outbreak, which cost us roughly 35 basis points of total company IDs without fuel.

2% this quarter. Customers continued to shop in our stores and online, and we saw traffic increase during the quarter. At the same time, the macro environment is challenging. We know that fuel over $4 has an impact on consumer spend.

Lower drug prices in pharmacy reduced sales by approximately 140 basis points. The top line was soft across the industry this quarter. Despite these industry-wide challenges, our teams are executing our plan. Keep the customer at the center.

Move with more speed. Be great at item merchants. We are resolute and committed to executing our plan. We're chasing every dollar we can save, and you can see that in our profit result.

09. These results demonstrated the strength and flexibility of our operating model in a challenging sales environment, and I'm pleased with how our teams delivered. Our goal remains simple. We're building America's favorite grocer.

Customers want value, quality, convenience, and a shopping experience they can trust. When we deliver those things consistently, we earn bigger baskets and more trips. A lot of the work we need to do is right in front of us. We're making progress on execution across the business, but there's still work to be done, and opportunity remains inside our stores.

Better in-stocks, better merchandising, better standards, better shrink management. These are not new ideas, but customers notice when we execute well. This quarter, on-shelf availability reached an all-time high and our pickup perfect orders were our best ever. We also have an opportunity to become stronger merchants.

" and creating excitement around great products in our stores. When we've done that, customers have responded. Natural and our prepared meals grew well ahead of total sales. At the same time, we have to be relentless on cost.

Our teams are moving with more speed and urgency, and sourcing and savings came in ahead of plan this quarter. There is more work to do across sourcing, procurement, productivity, and simplification. Every dollar we take out is a dollar we can reinvest in areas customers will see. That is how this becomes sustainable for customers and for shareholders.

Value continues to matter, and it matters more when budgets are tight. Our customer value plan is underway and progressing well. We have opportunities to strengthen our value position, simplify promotions, and make it easier for customers to recognize value in our stores. This is a multi-year effort, and we'll have more to share at our investor update in October.

E-commerce is where most of the growth in our industry will come from over the next several years, and we intend to take our share of it. We've built real capability, and our stores give us a strong advantage. But customers have choices, and the bar for convenience and reliability keeps moving higher. Our objective is to grow e-commerce faster and more profitably and deliver an experience customers can count on every time.

And none of this works without great people, and that's why building a strong culture remains one of my highest priorities. Simplicity and focus matter. When the work is simpler, our associates spend more time with customers. This quarter we welcomed Emily DiMartino as our Chief People Officer.

Emily brings deep experience leading people teams and large frontline organizations, and she's already shaping our focus on leadership and talent development. We're also pleased to welcome Nate Foust as Executive Vice President and Chief E-commerce Officer. Nate has spent more than two decades building successful e-commerce businesses, and he brings the mix of merchandising, supply chain, and technology experience we need to accelerate our growth. We're also pleased to welcome Mark Ibbotson as Executive Vice President and Chief Store Operations Officer.

Mark brings extensive retail and operational leadership experience, and he will help us raise the level of execution across the enterprise. We know what great looks like in our best divisions. The opportunity now is to deliver that level of performance more consistently across the organization. The work we have underway is beginning to take hold, and we are seeing early green shoots that the improvements we are making are resonating with customers.

Let me give you some more context on the environment we are operating in. Customers remained under pressure, and that has affected the industry broadly. Unit growth has slowed since the start of the year. Reductions in SNAP benefits, higher fuel prices, and softer consumer confidence are all putting pressure on household budgets.

Customers are buying more on need. At the same time, we're still seeing them prioritize their health. We continue to see strong engagement in natural and organic, and we're responding by expanding the assortment across the store. During the quarter, we added more than 600 new natural and organic items, giving customers more healthy choices at great value.

We're also finding new ways to make health and wellness more accessible and convenient. In August, we launched a new grocery and prescription delivery offering with Instacart, allowing customers to combine groceries and eligible prescriptions into a single order across nearly all our banners. It's another example of how we're using the strength of our ecosystem to reduce friction and improve service. Cyclospora also affected results late in the quarter.

While the categories impacted were limited, customers responded more broadly across our produce department. Our teams moved quickly, followed established protocols, and worked closely with suppliers and regulators. Food safety is our highest priority, and protecting consumer trust matters. We also remained disciplined, taking unnecessary costs out while delivering greater value to customers.

Those priorities go hand in hand and supported strong gross margin performance despite top line challenges. The formula is simple: savings fund value. Value earns a trip, and the trip is what grows this business. E-commerce had a strong quarter.

During the quarter, adjusted e-commerce sales grew 20%, and combined with the continued strength of retail media, we delivered our second consecutive quarter of profitable e-commerce growth. We're also attracting new customers, up 20% versus last year, led by strong engagement during online deal days. We have renewed our focus on in-store fulfillment and fast delivery, and we're seeing encouraging growth in delivery orders in less than an hour. Demand continues to shift towards faster fulfillment, and we're positioning our network to meet it.

Retail media grew 24% during the quarter, our best since 2021, with media monetization up 88 basis points. Stronger collaboration between our merchandising and media teams, expanded advertising inventory, and optimization efforts improve visibility and conversion for our brand partners. Our brands remain a real point of difference. With 35 plants, we control the costs and quality in a way most retailers cannot.

Customers are looking for value, but they're not willing to compromise on quality. Our brands answer both, and the momentum shows it, particularly in Private Selection and Simple Truth. Private Selection sales increased more than 14% during the quarter, driven by strong customer response to new products, including more ready-to-heat and ready-to-eat meals. Products like our Mandarin Orange Chicken and Italian-inspired Gnocchi alla Sorrentina are resonating with customers and reinforce the strength of our premium convenient meal offerings.

Across the portfolio, our brand sales grew faster than national brands, and penetration increased approximately 50 basis points. Looking ahead, we're also expanding Smartway, our opening price point brand, with more items, broader coverage across the store, and improved visibility both in store and online. Earlier this quarter, we expanded our loyalty program and rebranded fuel points as Simply Points. Customers can now use points for savings at the pump or apply them directly to their grocery bill in store or online.

What I like about this approach is that it gives customers more flexibility to decide where the value matters most. More ways to earn, more flexibility in how customers use them. That is what a loyalty program should do. Let me also briefly touch on our planned acquisition of Giant Eagle.

At its core, this is about serving more customers in more communities with the value, quality, and convenience they expect. We have a great deal of respect for the Giant Eagle team and the business they have built. Like Kroger, they have strong local relationships, trusted brands, and a long history of serving their customers. We believe this combination creates a stronger business for customers, associates, and the communities we serve.

We continue to expect the transaction to close in 2027 and remain focused on working through the regulatory review process. Stepping back, we see clear opportunities to strengthen our sales momentum, and we're going after them item by item. We controlled what we could control. We managed costs.

We strengthened value for customers. We grew our e-commerce business profitably, and we delivered our profit goals in a quarter where the top line made that hard to do. I've always believed periods like this reward the operators who stay disciplined and keep doing right by the customer. That is where our focus is, and it's why I like our position going into the back half of the year.

In October, we will hold our investor update. We will lay out the long-term framework, how we grow sales in store and online, how we fund the customer experience through cost savings, and what that means for the earnings power of this company. I'm looking forward to it. The work is never done, and that suits us a little better every day in a lot of places at once.

I will now turn the call over to David. David Kennerley, Chief Financial Officer Thank you, Greg, and good morning, everyone. Greg outlined the priorities that are shaping our business, and this quarter's results reflect both the progress we are making and the areas where we see opportunity. Sales were softer than we planned, and we still delivered the profit we committed to.

Gross margins improved, e-commerce profitability improved, we improved value for customers out of savings, and we managed margins responsibly. 2%. Let me walk through what drove that number starting with where we grew: natural foods, meat and seafood, and bakery all delivered strong results in the quarter. Within pharmacy, the core business was healthy, scripts grew, and we saw continued momentum in GLP-1 medications.

We continue to see impacts from the Inflation Reduction Act, which was an approximately 140 basis point headwind to identical sales without fuel, and the ongoing shift from brand to generic prescriptions reduced sales by approximately 60 basis points. Outside of pharmacy, the impact from Cyclospora Greg referenced was a 35 basis point headwind to company IDs without fuel from produce alone, and the lingering effect of egg deflation was another 30 basis point headwind. Taken together, these headwinds represented a 265 basis point drag on identical sales without fuel in the quarter.

In terms of units, grocery units decelerated slightly compared to the first quarter, driven by many of the factors Greg covered earlier. This was partially offset by overall food inflation, which was modestly higher than the first quarter. But what is important is that we continue to perform better than Circana's rest of market, a benchmark of traditional grocery competitors. Against this backdrop, we stayed focused on delivering value for customers, working with suppliers to optimize cost, strengthening our value proposition versus competitors, and managing margins responsibly.

Our FIFO gross margin rate, excluding rent, depreciation and amortization, and fuel, increased 13 basis points versus the second quarter of last year. This improvement was primarily driven by e-commerce profitability and media, pharmacy mix, tariff refunds, and sourcing initiatives. These benefits were partially offset by higher shrink, increased transportation costs, and investments in customer value. We continue to expect our FIFO gross margin rate to be positive on a full-year basis as cost savings initiatives ramp throughout the balance of the year.

Our operating general and administrative rate increased 33 basis points versus the second quarter of last year, driven by deliberate investments in associate wages, increased healthcare costs, and sales deleverage, partially offset by lower incentive plan costs and ongoing productivity initiatives. 1 billion. 09, representing 5% growth versus last year. Let me also address tariffs.

As we've previously discussed, our exposure is more limited than many of our competitors, reflecting the fact that the majority of what we sell is food sourced domestically. We did receive tariff refunds in the quarter, but they were not a meaningful driver of results and they were fully reinvested back in value. While sales were soft in the quarter, earnings continued to benefit from gross profit improvement, cost savings, fuel contribution, and the progress we are making in e-commerce and media. Cost savings remain a core pillar of our long-term strategy.

They are how we fund investments in customer value while protecting the long-term earnings power of the business. In the second quarter we again delivered savings above our plan, with broad-based contributions across both cost of goods sold and goods not for resale initiatives. We continue to see meaningful runway across sourcing, procurement, simplification, and productivity, and we expect savings to build through the balance of the year. We look forward to sharing more specific long-term targets at our investor update in October.

Turning to fuel. Fuel remains an important contributor to our financial model. While industry fuel demand remained under pressure, our gallons increased in the quarter, outperforming the broader market by approximately 520 basis points.