Key Takeaways
- Kroger posted $34.6 billion in second-quarter sales, up from $33.9 billion a year earlier, and grew adjusted earnings per share 5% despite a soft sales environment.
- Adjusted ecommerce sales rose 20%, the second straight quarter of profitable ecommerce growth, with new customers up 20% and Kroger Precision Marketing profit up 24%.
- Reduced SNAP benefits, higher fuel prices and tighter household budgets are pushing shoppers toward necessities, and Kroger is answering with a multi-year value strategy built on savings without cutting product quality.
Company officials at grocery chain Kroger are focusing on what it can control as consumers continue to feel the squeeze.
The grocer’s second-quarter results reflected a challenging sales environment, but also showed areas of progress as Kroger continues to deliver value, improve store execution and expand its digital business.
Kroger reported $34.6 billion in Q2 sales, up from $33.9 billion a year earlier, while sales excluding fuel and other adjustments rose 0.1%. Gross margin was 22.4%, down slightly from 22.5% a year ago, reflecting higher shrink and transportation costs and the impact of greater value delivered to customers, partially offset by stronger ecommerce profitability, pharmacy performance and sourcing initiatives.
“Kroger delivered a solid second quarter, with adjusted EPS growth of 5%,” said CEO Greg Foran in the earnings release. “I am pleased with the progress we are making. Our teams kept driving value for customers, improving execution in our stores, growing ecommerce profitably and managing costs with discipline. Improving sales momentum remains a top priority. While there is more work to do, I am confident in our plan to become America’s favorite grocer.”
Customer traffic increased during the quarter, while on-shelf availability reached an all-time high. At the same time, Kroger continued rolling out its multi-year customer value strategy, looking for ways to give shoppers more savings without compromising the quality of the products they buy.
That has become more important as changes in consumer spending continue to affect the grocery industry. Kroger officials noted reduced SNAP benefits, higher fuel prices and household budget pressures are causing customers to focus more on necessities and make more deliberate purchasing decisions.
The company’s response has included expanding its natural and organic assortment by more than 600 items and finding additional ways to make health and wellness more accessible. Customers also responded positively across the produce department.
Ecommerce Provides a Bright Spot
Kroger’s ecommerce business continued to stand out from the broader sales picture.
Adjusted ecommerce sales grew 20% in the quarter, marking the second consecutive quarter of profitable ecommerce growth. New customers also increased 20%, helped by stronger engagement and growth in delivery orders, including orders completed in less than an hour.
Kroger Precision Marketing, meanwhile, continued to benefit from the company’s growing digital relationship with customers, with profit increasing 24%.
Foran said ecommerce is expected to account for much of the grocery industry’s growth in the coming years. For Kroger, the priority is to grow that business faster while also improving its profitability and giving customers a reliable experience.
Value Remains Central
The company’s approach reflects a consumer who wants value but is not necessarily willing to trade down on quality.
Kroger continued to emphasize savings programs and expanded its fuel rewards offering to give customers more flexibility in deciding where they get the most value. Strong performances in natural foods, meat and bakery also helped offset weakness elsewhere.
Profitability remained another area of focus. Although sales were softer than Kroger had planned, the company still delivered adjusted earnings growth, helped by cost savings, pharmacy and fuel performance and improving ecommerce profitability.
The company is continuing to pursue its planned acquisition of Giant Eagle, which is expected to close in 2027.
For now, Kroger’s focus is straightforward: improve execution, strengthen value and find opportunities to build sales momentum even as customers remain cautious.
Updated Guidance
“Given our first-half results and the macro environment, we are updating our identical sales without fuel guidance to a new range of 0.2% to 0.8%, which includes an approximately 140 basis point headwind from the Inflation Reduction Act,” said CFO David Fearnley in the earnings release. “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. We will continue to invest in the business for growth, manage our margins with discipline and create long-term shareholder value.”
Foran Sees Disciplined Customer Mindset As An Opportunity
Kroger officials are taking a measured, market-by-market approach to improving its price perception, with the goal of positioning the grocer as a strong value option rather than simply the cheapest.
Foran said the strategy will take time, but early results are encouraging.
“Customers have options,” he explained. “They can turn left or they can turn right. We know what that gap should be and that’s what we’re working toward. You can’t do it all at once because you can’t fund it all at once. We glide down a bit like you’re flying a plane and come up with a promotional mix that makes sense.”
But changing price perception is a process and Foran acknowledged that customers may not immediately recognize the impact of Kroger’s efforts.
“Initially, when you take action on your shelf prices, your sales go down,” he added. “Over time my experience has been that perception does equal reality. Some of our customers understand our promotional package, but well over half do not.”
Change won’t happen immediately, Foran said.
“This isn’t going to happen in five minutes,” Foran explained. “I’d say to you to give us a year and give us a year after that and we’ll be even better. The consumer continues to be disciplined. I like the fact that it’s getting tough and those conditions present an opportunity when you execute. Two hundred days into the job I see even more opportunities than when I started. I’m really pleased with the discipline we have in the business. It’s tough when you’ve got to deal with the environment and conditions we’re playing in, but I actually think this is an advantage to us because we’re assembling a world class team of retailers.”
