Kroger (KR.US) Q2 profit exceeded expectations but fell by more than 3%: same-store sales only increased by 0.2%, and sales guidance for the whole year was lowered

The Zhitong Finance App learned that after Kroger (KR.US) released its second quarterly report, the stock price fell more than 3% before the market, mainly because the company's same-store sales growth in the second quarter was significantly lower than market expectations, and the year-round same-store sales guidelines were lowered, causing investors to worry about weak consumer spending and the company's future revenue growth prospects. The Cincinnati-based grocery store operator announced that its total sales for the second quarter reached $34.6 billion, up 2.1% year over year, exceeding general market expectations of $34.5 billion. Adjusted earnings per share (non-GAAP EPS) of $1.09 were not only higher than $1.04 in the same period last year, but also beat Wall Street's unanimous expectations of $1.04.

During the reporting period, the company's same-store sales after excluding fuel increased by 0.2%, while the market expected about 0.9%, compared to 3.4% in the same period last year. After excluding the impact of fuel, Vitacost sales, and the exit of some fulfillment centers, the company's sales increased 0.1% over the same period last year. In terms of profit, GAAP operating profit rose to US$971 million from US$863 million a year ago, while adjusted FIFO operating profit recorded US$1,076 million. Gross margin accounted for 22.4% of sales in the second quarter. The decline in gross margin was mainly suppressed by the combined effects of an increase in the share of fuel sales, increased inventory loss, rising transportation costs, and increased customer concessions. However, the increase in e-commerce profitability, the development of retail media business, favorable pharmacy portfolios, purchase-side measures, and tariff refunds hedged some of the cost pressure. At the same time, the LIFO calculation for this quarter also dropped significantly from $62 million in the same period last year to $39 million.

In terms of performance guidance, Kroger lowered the 2026 same-store sales forecast after excluding fuel from 1.0% to 2.0% to a range of 0.2% to 0.8%. However, management reiterated the expectation that FIFO operating profit for the 2026 fiscal year would remain between $5 billion and 5.2 billion US dollars, and that the earnings guidance per share would remain between $5.10 and $5.30 (median of $5.20, in line with market expectations). Chief Financial Officer David Kennerley (David Kennerley) emphasized that the reaffirmation that the profit and earnings per share guidelines reflect the company's confidence in the second-quarter profit drivers, and will continue to balance business investment and profit margin management in the future to create long-term shareholder value.

The balance sheet and capital allocation strategy remained steady. The ratio of Kroger's total net debt to adjusted EBITDA was 1.91 times, up 1.63 times from the same period last year, but it is still within the target range of 2.30 times to 2.50 times set by the company, maintaining an investment-grade debt rating. The company said it will continue to generate strong free cash flow, maintaining free cash flow guidance of 2.7 billion to 2.9 billion US dollars for the full fiscal year, maintaining capital expenditure of 3.8 billion to 4 billion US dollars, and promising to gradually increase the quarterly dividend payment rate in the future.