Kroger Raises Earnings Outlook. Grocery Demand Remains Strong.

Shoppers in a Kroger supermarket in Atlanta. (Elijah Nouvelage / AFP / Getty Images)

Key Points

About This Summary

• Kroger’s second-quarter earnings surpassed expectations, driven by a 3.4% increase in identical sales, excluding fuels.
• The grocery chain raised its full-year sales outlook to 2.7% to 3.4% and earnings outlook to $4.70-$4.80 per share.
• Growth was propelled by pharmacy, fresh produce, and e-commerce, despite challenges like consumer demand and competition.

Kroger’s second-quarter earnings were better than expected, and the grocery giant raised its outlook for the year on improving sales volume. It’s a sign that more consumers are eating at home as rising prices at restaurants have pushed more people to shop at grocery stores.

For the quarter ended Aug. 16, the supermarket chain posted a 3.4% year-over-year growth in identical sales without fuels, beating analyst expectations of 2.8% growth. Adjusted earnings came at $1.04 per share, up from 93 cents a year ago, also topping the 99 cents a share that analysts had forecast.

The stock is up 1.9%, and has gained 11.7% so far this year.

For the full fiscal year, Kroger expects identical sales excluding sales of fuel to grow between 2.7% and 3.4%, adjusted higher from the previous forecast of 2.25% to 3.25% growth. The company also raised the floor of its earnings outlook to $4.70 from $4.60 per share. It maintained the ceiling at $4.80 a share.

Sales growth was led by Kroger’s pharmacy and fresh produce segments, as well as its e-commerce channel, which generated 16% more sales compared with a year ago, said Chief Financial Officer David Kennerley. The grocer’s operating margin also expanded thanks to the sale of its lower-margin specialty pharmacy business in 2024.

More people are eating at home as prices at restaurants keep rising. Over the past five years, costs for “food away from home”—a measurement for restaurant prices used by the Bureau of Labor Statistics—increased 30%, outpacing “food at home,” or grocery costs, by five percentage points.

“We view Kroger’s business momentum and operating execution as strong,” wrote Telsey Group analyst Joe Feldman on Thursday shortly after the report. “The company’s emphasis on simplifying the organization, improving the customer experience, and creating value is showing signs of early success.”

Things haven’t been all smooth at Kroger. The high-profile acquisition of rival supermarket chain Albertsons was blocked by antitrust regulators last December. Former CEO Rodney McMullen resigned in March after a board investigation found his personal conduct was inconsistent with the company’s ethics policies.

The chain is also facing wobbling consumer demand, especially among low-income shoppers, potential tariff impact, and continuous—albeit cooled-down—inflation. There’s also increasing competition from e-commerce giant Amazon.com and big-box retailers like Walmart and Costco Wholesale.

Write to Evie Liu at evie.liu@barrons.com