Cincinnati, OH – June 20, 2025 – The Kroger Co. (NYSE: KR), one of America’s largest grocery retailers, has reported robust financial results for the first quarter of fiscal year 2025, exceeding analyst expectations and demonstrating solid operational performance. The company highlighted strong sales growth in key areas, improved profitability, and updated its full-year guidance for identical sales without fuel, reflecting positive momentum despite an uncertain economic backdrop.
“Kroger delivered solid first quarter results, with strong sales led by pharmacy, eCommerce, and fresh categories,” stated company leadership. “We made good progress in streamlining our priorities, enhancing customer focus, and running great stores to improve the shopping experience. Our commitment to driving growth in our core business and moving with speed positions us well for the future. We are confident in our ability to build on our momentum, deliver value for customers, invest in associates, and generate attractive returns for shareholders.”
First Quarter 2025 Financial Highlights:
Kroger’s performance in the first quarter of FY 2025, which ended May 24, 2025, showcased resilience and strategic effectiveness.
Total Company Sales: Reached $45.1 billion, a slight decrease from $45.3 billion in the same period last year. This change was primarily influenced by the sale of Kroger Specialty Pharmacy, which contributed $917 million to sales in the prior year’s quarter.
Sales Excluding Key Items: Excluding fuel, Kroger Specialty Pharmacy, and adjustment items, sales increased by a strong 3.7% compared to the first quarter of FY 2024.
Identical Sales Without Fuel: A key industry metric, identical sales excluding fuel saw a 3.2% increase year-over-year, surpassing analyst projections of around 2.3%.
Reported Operating Profit: Stood at $1,322 million.
Adjusted FIFO Operating Profit: Reached $1,518 million, reflecting operational performance excluding certain items like the Last-In First-Out (LIFO) accounting charge.
Reported EPS: $1.29 per diluted share.
Adjusted EPS: $1.49 per diluted share, beating the Visible Alpha consensus analyst forecast of $1.45.
Sales Performance Driven by Key Priorities
Beyond overall sales figures, Kroger saw particularly strong growth in strategic areas:
eCommerce Sales: Continued impressive expansion, growing by 15% compared to the prior year period, highlighting the success of Kroger’s seamless digital and pickup/delivery options.
Pharmacy and Fresh Categories: These departments were specifically noted by management for driving strong sales performance during the quarter, indicating continued customer engagement with Kroger’s core grocery and health offerings.
Profitability and Expense Management
Kroger demonstrated improved profitability metrics in the first quarter:
Gross Margin: Increased to 23.0% of sales, up from 22.0% in Q1 2024, a 100 basis point improvement.
FIFO Gross Margin Rate (Excluding certain items): Improved by 79 basis points year-over-year.
Margin Improvement Drivers: This enhancement in gross margin was primarily attributed to the sale of Kroger Specialty Pharmacy, lower shrink (inventory loss), and reduced supply chain costs. Growth in pharmacy sales, which typically carry lower margins, partially offset these gains. The sale of Kroger Specialty Pharmacy alone contributed significantly, accounting for 46 basis points of the improvement in the FIFO gross margin rate (excluding specific items).
LIFO Charge: Was $40 million, a slight decrease from $41 million in the same period last year.
Operating, General and Administrative (OG&A) Rate: Increased by 63 basis points (excluding fuel and adjustments). This rise was mainly driven by the impact of the Kroger Specialty Pharmacy sale and an accelerated contribution to a multi-employer pension plan, which alone added 29 basis points to the rate increase. Improved productivity partially mitigated this increase.
Strategic Updates and Capital Allocation
Kroger provided updates on strategic initiatives and its approach to capital allocation:
Store Optimization: The company recorded a $100 million impairment charge related to the planned closure of approximately 60 stores over the next 18 months. Kroger anticipates a modest financial benefit from these closures and is committed to reinvesting the savings back into the customer experience. This action is not expected to impact full-year guidance. All associates at affected stores will be offered roles at other Kroger locations.
Financial Strength: Kroger remains focused on generating strong free cash flow and investing in the business for long-term sustainable net earnings growth. The company is committed to maintaining its investment-grade debt rating.
Shareholder Returns: Kroger expects to continue paying its quarterly dividend and anticipates increasing it over time, subject to board approval. The company is also actively executing a $5 billion accelerated share repurchase (ASR) program, initiated in late FY 2024, which is expected to be completed by the third quarter of FY 2025. Following the ASR, Kroger plans to resume open market share repurchases under the remaining $2.5 billion authorization, aiming to complete these by the end of FY 2025.
Debt Management: Kroger’s net total debt to adjusted EBITDA ratio stood at 1.69 at the end of the quarter, up from 1.25 a year ago but still comfortably below its target range of 2.30 to 2.50, providing flexibility for investment.
Outlook and Guidance Update
Based on the solid first-quarter performance and positive momentum, Kroger has updated its full-year fiscal 2025 guidance for identical sales without fuel.
Identical Sales Without Fuel Guidance: Raised to a new range of 2.25% to 3.25%, up from the previous range of 2% to 3%.
Despite Q1 sales and profitability exceeding expectations, the company noted that the macroeconomic environment remains uncertain. As a result, other key elements of the full-year guidance were reaffirmed:
Adjusted FIFO Operating Profit: Expected to be between $4.7 billion and $4.9 billion.
Adjusted Net Earnings Per Diluted Share: Projected to be between $4.60 and $4.80. (The midpoint of this range is slightly below current analyst consensus.)
Adjusted Free Cash Flow: Anticipated between $2.8 billion and $3.0 billion.
Capital Expenditures: Expected to be between $3.6 billion and $3.8 billion.
Adjusted Effective Tax Rate: Expected to be approximately 23%.
Chief Financial Officer David Kennerley commented that the uncertain macroeconomic environment influenced the decision to keep other guidance elements unchanged, despite the strong start to the year. He reiterated confidence in Kroger’s strategy centered on fresh products, the popular ‘Our Brands’ private label offerings, and eCommerce, positioning the company well to navigate the current environment.
Market Reaction and Context
Following the earnings announcement, Kroger’s stock performed positively, leading gains among some indices, as the adjusted EPS and identical sales growth exceeded analyst expectations. The results come as Kroger continues to navigate the aftermath of its terminated merger with Albertsons, including ongoing legal matters related to the process. Kroger remains focused on its core business strategy and delivering value to customers and shareholders through operational excellence and strategic investments.
References
- www.tradingview.com
- <a href="https://markets.ft.com/data/announce/detail?dockey=600-202506200800PRNEWSUSPRXCL11769-1″>markets.ft.com
- drugstorenews.com
- www.investopedia.com
- www.theglobeandmail.com
