Key Takeaways
- Q2 adjusted earnings per share reached $1.09, surpassing analyst expectations of $1.04
- Comparable sales excluding fuel registered only 0.2%, a significant decline from 3.4% in the prior year
- Annual comparable sales forecast reduced to 0.2%-0.8% from previous guidance of 1.0%-2.0%
- Annual adjusted earnings per share outlook remained unchanged at $5.10-$5.30
- Shares retreated 2.8% to $55.35 in premarket activity
Shares of Kroger (KR) tumbled 2.8% to $55.35 in early Friday trading following the supermarket operator’s second-quarter earnings report, which featured a downward revision to its annual sales projection.
Comparable store sales without fuel increased a modest 0.2% during the quarter that concluded on August 15, representing a dramatic deceleration from the 3.4% expansion recorded in the corresponding quarter last year. Overall revenue reached $34.6 billion, climbing from $33.9 billion in the year-earlier period.
Adjusted earnings of $1.09 per share exceeded the Wall Street consensus of $1.04 and marked a 4.8% increase year-over-year. Operating income climbed to $971 million compared to $863 million in the comparable prior-year quarter.
Adjusted FIFO operating income totaled $1.076 billion, marginally trailing the previous year’s figure of $1.091 billion.
Lowered Sales Forecast Dampens Investor Mood
The primary source of investor unease stemmed from the reduced sales outlook. The grocery chain lowered its annual comparable sales guidance (excluding fuel) to a range of 0.2%-0.8%, down from the earlier projection of 1.0%-2.0% announced in June.
Management cited an approximately 140 basis point negative impact from the Inflation Reduction Act as a contributing element to the adjusted forecast.
Regarding profitability, the company kept its full-year adjusted EPS guidance unchanged at $5.10-$5.30, aligning with the $5.20 analyst consensus at its midpoint.
Gross profit margin came in at 22.4% of revenue in the second quarter, edging down from 22.5% in the same period last year. The compression resulted from elevated fuel sales mix, increased shrinkage, and higher logistics expenses.
These headwinds were partially counterbalanced by enhanced e-commerce margins, favorable pharmacy segment mix, and procurement efficiencies.
Positive Developments Within the Quarter
Kroger disclosed adjusted eCommerce revenue expansion of 20% alongside Kroger Precision Marketing profit advancement of 24% during the period.
CFO David Kennerly emphasized the earnings performance as justification for optimism: “We are reaffirming our adjusted FIFO net operating profit and adjusted earnings per diluted share guidance, reflecting our confidence and visibility into the same factors that drove our profitability in the second quarter.”
The company also boosted its quarterly dividend payment by 11% during the quarter, marking the 20th straight year of dividend growth.
Management executed $1.0 billion in share repurchases throughout Q2, pushing year-to-date buybacks to $1.2 billion under its $2 billion program. Approximately $800 million remains available, which the company anticipates completing by the conclusion of fiscal year 2026.
The net total debt to adjusted EBITDA ratio registered 1.91x, rising from 1.63x one year ago, though remaining comfortably within the company’s target corridor of 2.30x-2.50x.
KR’s 52-week peak stands at $76.58.
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