Executive Summary

Q2 2026 delivered solid top-line and margin performance: Sales $33.94B, EPS $0.91, Adjusted EPS $1.04, gross margin 22.5% and identical sales ex-fuel +3.4% .
Relative to S&P Global consensus, Adjusted EPS beat ($1.04 vs $1.00*) while revenue was slightly below ($33.94B vs $34.15B*); Kroger raised FY25 guidance on IDs, operating profit, and EPS, and lowered its adjusted tax rate to 22% .
Strategic execution themes: pharmacy strength (GLP-1s, ESI return), eCommerce +16% with delivery surpassing pickup, disciplined price investments with margin neutrality, and ongoing cost optimization initiatives .
Capital allocation supports TSR: net total debt/adj EBITDA 1.63 (below 2.3–2.5 target), $5B ASR progressing, and a quarterly dividend of $0.35 declared post-quarter; management reaffirmed focus on growth investments and share repurchases .
Near-term catalysts: Q3 update on eCommerce strategic review, sustained pharmacy momentum, and continued price-investment execution; fuel remains a profit headwind and pharmacy mix creates margin pressure on rate despite gross profit dollar growth .

Values for consensus estimates marked with * were retrieved from S&P Global.

What Went Well and What Went Wrong

What Went Well

Pharmacy, eCommerce, and Fresh led sales growth; identical sales ex-fuel rose 3.4% and eCommerce increased 16%, with delivery surpassing pickup for the first time .
Underlying OG&A rate improved materially after adjusting for Kroger Specialty Pharmacy sale, decreasing 41 bps; CFO emphasized cost optimization and sourcing opportunities to fund price investments while maintaining margins .
Management raised FY25 guidance ranges (IDs 2.7–3.4%, operating profit $4.8–$4.9B, EPS $4.70–$4.80) and highlighted improved customer price perception and share gains where new stores were added .

Quotes:

“Accelerating our AI efforts… we’re seeing results with more competitive pricing, shrink improvements and faster fulfillment” — Interim CEO Ron Sargent .
“We are raising… guidance to new ranges of $4.8 to $4.9 billion and $4.70 to $4.80, respectively.” — CFO David Kennerley .

What Went Wrong

Revenue modestly below consensus*, and fuel remained a headwind (lower retail price per gallon and fewer gallons sold) pressuring profitability .
Pharmacy mix compressed margin rate even as it added gross profit dollars; FIFO gross margin excluding the Specialty Pharmacy sale declined ~9 bps YoY on an underlying basis .
LIFO charge stepped up to $62M in Q2 due to resetting accruals and current inflation run-rate, creating a below-the-line drag .

Values for consensus comparisons marked with * were retrieved from S&P Global.

Financial Results

Metric	Q2 2025	Q1 2026	Q2 2026
Revenue ($USD Billions)	$33.91	$45.12	$33.94
EPS (GAAP) ($)	$0.64	$1.29	$0.91
Adjusted EPS ($)	$0.93	$1.49	$1.04
Operating Profit ($USD Millions)	$815	$1,322	$863
Adjusted FIFO Operating Profit ($USD Millions)	$984	$1,518	$1,091
Gross Margin (%)	22.1%	23.0%	22.5%
Identical Sales ex-Fuel (%)	1.2%	3.2%	3.4%
LIFO Charge ($USD Millions)	$21	$40	$62

Segment/Driver KPIs

KPI	Q2 2025	Q1 2026	Q2 2026
eCommerce Sales Growth (%)	—	+15%	+16%
Delivery vs Pickup Mix	—	—	Delivery exceeded pickup
Pharmacy (ESI impact on IDs)	—	<10 bps in Q1	~15 bps in Q2
Two-hour Delivery Coverage	—	—	97% of stores
Net Total Debt / Adjusted EBITDA	1.24 (prior year)	1.69	1.63
OG&A (underlying ex-KSP)	—	Flat underlying	−41 bps underlying
Fuel Profitability	—	Headwind	Headwind

Notes: KSP = Kroger Specialty Pharmacy sale impact.

Guidance Changes

Metric	Period	Previous Guidance (Jun 20, 2025)	Current Guidance (Sep 11, 2025)	Change
Identical Sales ex-Fuel	FY25	2.25% – 3.25%	2.7% – 3.4%	Raised
Operating Profit	FY25	$4.7 – $4.9B	$4.8 – $4.9B	Raised (lower end)
Adjusted EPS	FY25	$4.60 – $4.80	$4.70 – $4.80	Raised (lower end)
Adjusted Free Cash Flow	FY25	$2.8 – $3.0B	$2.8 – $3.0B	Maintained
Capital Expenditures	FY25	$3.6 – $3.8B	$3.6 – $3.8B	Maintained
Adjusted Tax Rate	FY25	23%	22%	Lowered
Dividend	Quarterly	$0.32 (Q1 declaration)	$0.35 declared Sep 18	Raised

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 2025)	Q1 2026	Current Period (Q2 2026)	Trend
eCommerce growth & profitability	Digital sales +11% ex-53rd week; CFC-led delivery growth	+15% growth; unified eComm under CDO; Ocado LOC draw per contract	+16% growth; delivery > pickup; Q3 update planned	Acceleration; path to profitability focus
AI/technology enablement	—	AI assistant for associates; data science at 84.51	AI improving pricing, shrink, fulfillment; 2-hour pickup	Expanding deployments
Pricing strategy & margins	—	Lowered prices on 2,000 items; margin-neutral ambition	Lowered prices on 3,500 items; underlying margin healthy ex pharmacy mix	More aggressive price investments; margin discipline
Pharmacy & GLP-1	—	Script growth incl. GLP-1; minimal ESI impact (<10 bps)	GLP-1 growth; ESI ~15 bps ID lift	Continued momentum; mix pressure on rate
Labor & store optimization	—	Announced ~60 store closures; multiple union agreements	Ongoing closures over 18 months; unit lift from paper coupons	Network optimization; customer value access
Fuel	—	Headwind expected all year	Headwind in Q2 and remainder of 2025	Persistent pressure
Retail Media	17% growth; $1.35B alt profit OP contribution FY24	Growth healthy despite cautious CPG spend	Slight acceleration; strategic client engagement	Improving trajectory

Management Commentary

Strategic focus: “We’re simplifying the company… lower prices… simpler promotions… reintroducing paper coupons in every store” — Ron Sargent .
eCommerce path: “We plan to review all aspects of our e-commerce… outcome will lead to stronger e-comm capabilities and a clear path toward profitability” — Ron Sargent .
Margin and cost discipline: “Adjusted OG&A rate significantly improved… decreasing 41 basis points on an underlying basis” — David Kennerley .
Balance sheet and TSR: “Net total debt to adjusted EBITDA ratio was 1.63… provides significant financial flexibility… dividend raised 9%” — David Kennerley .
Pharmacy & tariffs: “Pharmacy scripts and GLP‑1s drove another strong quarter… tariffs have not had a material impact” — David Kennerley .

Q&A Highlights

Price investments remain margin-neutral: management lowered prices on 3,500 items and expects to balance with sourcing savings and margin levers .
eCommerce strategy: delivery demand is rising, with delivery surpassing pickup; stores will be leveraged more for fulfillment; Q3 update on strategic review forthcoming .
Volumes vs ticket: units improved sequentially; inflation moderated slightly; grocery units near flat YoY .
LIFO: Q2 charge reflects catch-up and full-year inflation assumptions; don’t extrapolate Q2 incrementally for the back half .
Retail Media: slight acceleration; differentiated closed-loop measurement value proposition; expect healthy growth through year .
Fuel: gallons and profitability below last year, expected to be a headwind for the remainder of 2025 .
Consumer cohorts: low/mid-income are trading down to private label and coupons; higher-income splurge on premium (e.g., Private Selection) and larger pack sizes .

Estimates Context

Metric	Q2 2025	Q1 2026	Q2 2026
Primary EPS Consensus Mean ($)	0.9146*	1.4575*	0.9976*
EPS Actual ($)	0.93	1.49	1.04
Revenue Consensus Mean ($USD Billions)	34.12*	45.31*	34.15*
Revenue Actual ($USD Billions)	33.91	45.12	33.94
Beat/Miss	EPS beat; Rev miss	EPS beat; Rev miss	EPS beat; Rev miss

Values marked with * were retrieved from S&P Global.

Implication: Consensus may need to adjust for persistent fuel headwinds and pharmacy mix on margin rate, while EPS resilience reflects cost actions and alternative profit contributions .

Key Takeaways for Investors

Guidance raised on IDs (2.7–3.4%), operating profit ($4.8–$4.9B), and EPS ($4.70–$4.80), with adjusted tax rate lowered to 22% — supportive for near-term sentiment .
EPS outperformed consensus in Q2 despite revenue modestly below*, driven by margin discipline, cost optimization, and alternative profit businesses .
eCommerce momentum (16% growth) and delivery mix shift are positive; Q3 strategic review update is a potential catalyst for profit path clarity .
Pharmacy strength continues (GLP‑1s, ESI return), boosting IDs and gross profit dollars but weighing on margin rate; monitor mix impacts on rate vs dollar growth .
Fuel remains a year-long headwind; expect continued drag on profitability through FY25, partially offset by core grocery volume improvements .
Cost and sourcing initiatives provide “fuel” to fund price investments while holding margins broadly flat on an underlying basis — key to share gains versus EDLP competitors .
Balance sheet flexibility (net debt/adj EBITDA 1.63) enables continued buybacks post-ASR and dividend growth ($0.35 declared), reinforcing TSR framework .