The Kroger Co. (KR) Q2 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary shows a strong financial performance with raised sales guidance and a $5 billion share repurchase plan. The Q&A section reveals optimism in e-commerce growth and cost efficiencies, despite some challenges like pharmacy mix pressures. The company is focused on long-term value with strategic initiatives and expects stable margins. Overall, the positive elements outweigh the negatives, suggesting a likely positive stock price movement in the short term.
Key Financial Performance
Identical sales without fuel Grew 3.4% year-over-year, marking the sixth consecutive quarter of improvement. Growth was driven by pharmacy, e-commerce, and fresh categories, reflecting demand for healthier options and strategic price investments.
E-commerce sales Increased by 16% year-over-year, led by delivery performance and improvements in pickup and delivery profitability. Growth was driven by faster delivery times and leveraging store networks.
Adjusted FIFO operating profit $1.1 billion, reflecting strong performance in core grocery, e-commerce, and pharmacy. Growth was supported by disciplined price investments and reduced promotional complexity.
Adjusted EPS $1.04, representing 12% growth year-over-year, the strongest growth rate since Q4 2023. Growth was driven by operational improvements and cost optimization.
FIFO gross margin rate Increased by 39 basis points year-over-year, primarily due to the sale of Kroger Specialty Pharmacy, lower supply chain costs, and reduced shrink. Excluding the pharmacy sale, the rate decreased by 9 basis points due to pharmacy mix and price investments.
OG&A rate Decreased by 5 basis points year-over-year, driven by improved productivity and favorable comparisons to prior year. Excluding the pharmacy sale, the rate improved by 41 basis points.
Fuel sales Declined year-over-year due to lower average retail price per gallon and fewer gallons sold. Fuel profitability was also lower compared to the same period last year.
Retail media business Had a strong quarter, contributing to profitability. Growth was supported by digital momentum and increased customer engagement.
Net total debt to adjusted EBITDA ratio 1.63, below the target range of 2.3 to 2.5, providing financial flexibility for growth investments and shareholder returns.
Quarterly dividend Increased by 9%, marking the 19th consecutive year of dividend growth. Reflects strong free cash flow and commitment to shareholder returns.
You have reached the limit. Sign up to access full content
Get started
Operating Highlights
E-commerce: Achieved 16% growth in sales, driven by delivery and improvements in profitability for both pickup and delivery services. E-commerce remains a top priority for the company.
Private Label Brands: Strong sales growth in Simple Truth and Private Selection brands, outpacing national brands. These brands are seen as a critical strategic asset for building customer loyalty.
New Store Openings: On track to deliver 30 major store projects in 2025, with plans to increase store openings by 30% in 2026. This expansion aims to grow both in-store and online sales.
AI Implementation: Accelerating AI efforts to improve pricing, reduce shrink, and enable faster fulfillment, such as 2-hour pickup for customers.
Cost Optimization: Reduced corporate administrative team by nearly 1,000 associates and closed approximately 60 unprofitable stores to streamline operations.
Promotional Simplification: Simplified promotions and reintroduced paper coupons to make value offerings more accessible to non-digital customers.
E-commerce Strategy Review: Conducting a strategic review to improve customer experience and profitability by leveraging store networks for faster delivery and reducing last-mile delivery costs.
Go-to-Market Strategy: Initiated foundational work to refresh competitive positioning and customer data analysis for stronger future performance.
You have reached the limit. Sign up to access full content
Get started
Risk or Challenges
Store Closures: Kroger is closing approximately 60 unprofitable stores, which could lead to potential loss of market presence and customer base in affected areas.
Workforce Reductions: The company reduced its corporate administrative team by nearly 1,000 associates, which may impact employee morale and operational efficiency in the short term.
Noncore Asset Review: Kroger is reviewing all noncore assets to determine their contribution, which could lead to divestitures and potential operational disruptions.
E-commerce Profitability: While e-commerce sales grew by 16%, profitability remains a challenge, particularly in low-density areas where customer adoption is slower.
Supply Chain Costs: Although supply chain costs have decreased, ongoing optimization is required to maintain cost efficiency and support margin stability.
Tariff Environment: Kroger is monitoring the changing tariff environment, which could impact pricing strategies and cost structures if tariffs increase.
Labor Relations: While progress has been made on labor agreements, ongoing negotiations and wage improvements could increase operational costs.
Fuel Sales Decline: Fuel sales and profitability have decreased due to lower average retail prices and fewer gallons sold, impacting overall revenue.
AI Implementation: Accelerating AI efforts requires significant investment and operational changes, which could pose execution risks.
Strategic Review of Fulfillment Network: Kroger is conducting a site-by-site analysis of its automated fulfillment network, which may lead to closures or restructuring, potentially disrupting operations.
You have reached the limit. Sign up to access full content
Get started
Guidance & Outlook
Revenue and Sales Growth: Kroger raised its identical sales without fuel guidance to a range of 2.7% to 3.4% for the year, with Q3 expected to be slightly below the midpoint of this range. E-commerce sales are projected to continue growing, driven by delivery and faster fulfillment capabilities.
Store Expansion: Kroger plans to complete 30 major store projects in 2025 and increase store openings by 30% in 2026, focusing on more efficient layouts and faster construction timelines.
E-commerce and Digital Strategy: Kroger is conducting a strategic review of its e-commerce operations to improve profitability and reduce costs. The company aims to leverage its store network for faster delivery and lower last-mile costs, with updates expected in Q3 2025.
Artificial Intelligence (AI) Implementation: Kroger is accelerating its AI efforts to enhance competitive pricing, reduce shrink, and improve fulfillment times, including enabling 2-hour pickup for customers.
Capital Allocation and Shareholder Returns: Kroger plans to complete its $5 billion accelerated share repurchase (ASR) program in Q3 2025 and resume open market share repurchases under its $7.5 billion authorization. The company also raised its quarterly dividend by 9%.
Financial Guidance: Kroger raised the lower end of its adjusted FIFO net operating profit guidance to $4.8 billion to $4.9 billion and adjusted EPS guidance to $4.70 to $4.80 for the year.
You have reached the limit. Sign up to access full content
Get started
Shareholder Return Plan
Quarterly Dividend Increase: Kroger raised its quarterly dividend by 9% in the second quarter of 2025. This marks the 19th consecutive year of dividend increases. The quarterly dividend has grown at a compounded annual growth rate of 13% since its reinstatement in 2006.
Share Repurchase Program: Kroger is executing a $5 billion Accelerated Share Repurchase (ASR) program, expected to be completed in the third fiscal quarter of 2025. This is part of a $7.5 billion share repurchase authorization. After the ASR program, Kroger plans to resume open market share repurchases under the remaining $2.5 billion authorization, with completion expected by the end of the fiscal year.
You have reached the limit. Sign up to access full content
Get started
Key Q&A
Q:Can you help us understand how you plan to implement using stores for e-commerce fulfillment, including timing, cost, capacity, and labor considerations?
A:The company is already heavily using stores for e-commerce fulfillment, so not much change is needed. Automated facilities are being reviewed, and new store openings will help. The approach is asset-light, allowing deliveries within a couple of hours or even faster for a fee.
Q:Has anything changed in the competitive environment regarding price investments, and how do you view your price gap today?
A:The competitive pricing environment remains rational. The company has lowered prices on 3,500 products and simplified its pricing strategy. They aim to reduce spreads versus competitors while maintaining margin neutrality through cost-saving initiatives.
Q:How does your team feel about sustaining ID sales momentum above 3% going forward?
A:The team is confident but notes that year-over-year comparisons will be tougher in the second half. They expect healthy two-year stack growth and attribute success to simpler promotions, lower prices, and better service.
Q:What is driving the improved performance in retail media this quarter?
A:The company attributes the improvement to a strong retail media offering that provides unique capabilities to clients. They saw slight acceleration in this business and expect it to be a growth driver for the rest of the year and beyond.
Q:Can you explain the sequential improvement in volume and ticket growth in the second quarter?
A:The improvement was more due to unit growth than inflation. Grocery units have been improving and are now almost flat year-over-year.
Q:Is there a debate around moving to an EDLP pricing architecture?
A:No, the company will remain a promotional retailer as customers respond well to this model. However, they aim to narrow the spread on everyday price items and simplify their pricing strategy.
Q:How much further can you drive improvement in margins while maintaining a 3.1% margin rate?
A:The company sees significant opportunities in pricing, private brands, e-commerce, sourcing, and cost efficiencies. They are focused on simplifying operations and investing in areas that matter most to customers.
Q:Can you unpack the back half guidance and explain changes in margin or below-the-line perspective?
A:The company expects tougher year-over-year comparisons, continued pharmacy growth, and fuel headwinds. They are balancing these with cost and efficiency initiatives. The tax rate change is marginal and does not significantly impact guidance.
Q:How do you view the incrementality of e-commerce growth, and what are consumers looking for in shorter delivery windows?
A:E-commerce growth is driven by new households and increased order volumes from existing customers. Consumers value freshness, pricing, order completeness, and speed, with many willing to pay for faster delivery within two hours.
Q:To what extent are script share gains in pharmacy translating into improvements in other parts of the business?
A:Pharmacy customers contribute incrementally to the rest of the business. The company expects vaccine delays to normalize later in the year and sees pharmacy as a key part of the overall ecosystem.
Q:How are different income segments performing, and what are your inflation assumptions for the second half?
A:Low- and middle-income households are seeking deals and buying more private label products, while higher-income households are spending on premium products. Inflation is expected to be 1.5% to 2.5%.
Q:How are you thinking about the trajectory of FIFO gross margin excluding fuel for the second half?
A:The company expects FIFO gross margin excluding fuel to be relatively flat for the full year, balancing price investments with margin initiatives.
Q:What traits are you looking for in a new CEO, and are there areas being held off until the position is filled?
A:The search focuses on critical experiences, competencies, and leadership attributes. No areas are being held off; the company is moving forward aggressively in all areas.
Q:How should we think about LIFO charges for the back half of the year?
A:The LIFO charge includes a catch-up from Q1 and ongoing assumptions for the rest of the year. It reflects inflation running toward the midpoint of the expected range.
Q:Why wasn’t free cash flow guidance raised despite higher EBIT?
A:The company is balancing uncertain consumer environments, pharmacy mix pressures, and investments for long-term value, which led to no change in free cash flow guidance.
Q:How do you view the opportunity in sourcing, and what changes are being made to capture it?
A:Sourcing is seen as a significant opportunity, including cost of goods sold and indirect sourcing. The company is simplifying promotions and working closely with CPG partners to reduce costs.
Q:What can be done to speed up delivery times further, and how are electronic shelf labels being utilized?
A:Technology like AI and electronic shelf labels is being used to improve speed. Special picking areas and optimized in-store picking processes are also being explored.
Q:How significant is the shift back to paper coupons, and is it pulling in new customers?
A:The shift to paper coupons is generating unit lift and appealing to older and less digitally savvy customers. It is part of the company’s retention and recruitment strategy.
Q:What is being done to increase awareness of pharmacy services and integrate them with the rest of the store?
A:The company plans to better position pharmacy in stores and tie it into a broader health and beauty strategy, creating a cohesive shopping experience.
Q:How is AI being used, and what measurable improvements have been seen?
A:AI is being used for shrink reduction, inventory management, scheduling, planogramming, and customer personalization. It has shown measurable improvements in inventory levels and seasonal sales opportunities.
Q:Can you conceptualize the potential profit impact from the e-commerce strategic review?
A:The company is not ready to disclose specific numbers but plans to outline the path to profitability and associated timelines in the future.
Q:Review of Unclear Management Responses
A:Management avoided giving a direct answer to the potential profit impact from the e-commerce strategic review, stating they are not ready to disclose specific numbers as the review is still ongoing.
You have reached the limit. Sign up to access full content
Get started
Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
ASR program
Chairman
Chief
ESI
Instructions
OGA rate
Officer
President Investor
Sales
approach price
asset
associate labor
beginning
brand product
capital dividend
commerce pharmacy
commerce result
cost good
decrease
demand
division president
facility
footprint
fulfillment
grocery volume
improvement grocery
pharmacy commerce
pharmacy mix
price perception
rate basis
result progress
review
sale Specialty
share repurchase
site
strength cash
success
today result
way cost
KR Transcript
The Kroger Co. (KR) Q3 2025 Earnings Call Transcript
Positive12-5
The earnings call summary indicates a positive outlook with raised sales guidance, increased store projects, AI implementation, and a significant share repurchase program. The Q&A section reinforces this with discussions on managing pharmacy headwinds, e-commerce profitability, and strong retail media relationships. Despite lighter sales due to consumer caution, the overall sentiment is positive with responsible price investments and continued growth in key areas. The raised financial guidance and increased shareholder returns further support a positive stock price movement.
The Kroger Co. (KR) Q3 2026 Earnings Call Transcript
Positive12-4
The earnings call summary suggests a positive outlook due to raised financial guidance, increased shareholder returns, and strategic initiatives like AI and e-commerce improvements. The Q&A section highlights concerns about consumer caution and competitive pressures, but these are offset by strong vendor support and strategic investments. The company's proactive measures in store expansion, digital strategy, and cost savings from fulfillment center closures further support a positive sentiment. Despite some uncertainties, the overall tone is optimistic, with a focus on growth and profitability.
The Kroger Co. (KR) Q2 2025 Earnings Call Transcript
Positive9-11
The earnings call summary shows positive signs: raised sales guidance, strong e-commerce growth, and a major share repurchase plan. However, the Q&A reveals some uncertainties, such as margin pressures and lack of specifics on e-commerce profitability. Despite these concerns, the overall outlook is optimistic with raised sales guidance and strategic focus on high-growth areas, suggesting a positive stock reaction.
The Kroger Co. (KR) Q2 2025 Earnings Call Transcript
Positive9-11
The earnings call summary shows a strong financial performance with raised sales guidance and a $5 billion share repurchase plan. The Q&A section reveals optimism in e-commerce growth and cost efficiencies, despite some challenges like pharmacy mix pressures. The company is focused on long-term value with strategic initiatives and expects stable margins. Overall, the positive elements outweigh the negatives, suggesting a likely positive stock price movement in the short term.
KR Report
Frequently Asked Questions
Where does this earnings call transcript come from?
All transcripts are sourced directly from the official live webcast or the company’s official investor relations website. We use the exact words spoken during the call with no paraphrasing of the core discussion.
How soon is the transcript available after the earnings call ends?
Full verbatim transcripts are typically published within 4–12 hours after the call ends. Same-day availability is guaranteed for all S&P 500 and most mid-cap companies.
Is the transcript edited or altered in any way?
No material content is ever changed or summarized in the “Full Transcript” section. We only correct obvious spoken typos (e.g., “um”, “ah”, repeated 10 times”, or clear misspoken ticker symbols) and add speaker names/titles for readability. Every substantive sentence remains 100% as spoken.
Why do some answers appear as “Unclear” or “Inaudible”?
When audio quality is poor or multiple speakers talk over each other, we mark the section instead of guessing. This ensures complete accuracy rather than introducing potential errors.
Who creates the AI Summary and Key Q&A highlights shown above the transcript?
They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
