Sign in
KC

KROGER CO (KR)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 FY2025 earnings materials are not yet published; consensus calendars indicate the report is scheduled for Dec 4, 2025 . In the interim, Kroger announced a major eCommerce restructuring with expected Q3 impairment charges of approximately $2.6B and an anticipated neutral effect on identical sales without fuel .
  • Management expects the eCommerce actions to improve operating profit by approximately $400M in 2026, while lowering prices and improving store conditions to support margins .
  • Prior quarters showed solid operating performance: Q2 FY2025 adjusted EPS was $1.04 on $33.9B sales with gross margin at 22.5% (+40bps YoY) and identical sales without fuel +3.4% . Q1 FY2025 adjusted EPS was $1.49 on $45.1B sales; identical sales without fuel +3.2%; gross margin 23.0% .
  • Near-term stock reaction is likely to center on the magnitude and treatment of the Q3 impairment vs underlying adjusted trends; management indicates closures will be neutral to identical sales and should support long-term eCommerce profitability and ROIC improvement .

What Went Well and What Went Wrong

What Went Well

  • eCommerce trajectory: five consecutive quarters of double-digit eCommerce sales growth; expanded delivery partnerships with Instacart (primary fulfillment), DoorDash, and Uber Eats to reach customers in as little as 30 minutes .
  • Strategic tech enablement: Kroger will be among the first retailers to embed Instacart’s AI “Cart Assistant” in the Kroger iOS app, enabling agentic shopping and faster basket building .
  • Margin execution: Q2 FY2025 gross margin reached 22.5% (vs 22.1% in Q2 FY2024), driven by the sale of Kroger Specialty Pharmacy, lower supply chain costs, and reduced shrink; adjusted FIFO operating profit grew to $1,091M (vs $984M) .

What Went Wrong

  • Significant non-cash impairment: Kroger expects ~$2.6B impairment and related charges in Q3 FY2025 due to automated fulfillment network closures and underperformance vs financial expectations .
  • Network rationalization: closures of Pleasant Prairie, WI; Frederick, MD; and Groveland, FL fulfillment facilities indicate prior automation returns fell short; management will monitor remaining facilities and pilot capital-light store-based automation .
  • Leverage drift: net total debt to adjusted EBITDA rose to 1.63 from 1.24 YoY in Q2 FY2025, partially reflecting capital returns via an accelerated share repurchase and transaction-related items .

Financial Results

Quarterly Performance and Trajectory (FY2025 to date)

MetricQ1 FY2025Q2 FY2025
Revenues ($USD Billions)$45.118 $33.9
EPS (GAAP) ($)$1.29 $0.91
Adjusted EPS ($)$1.49 $1.04
Gross Margin (%)23.0% 22.5%
Adjusted FIFO Operating Profit ($USD Millions)$1,518 $1,091
Identical Sales without Fuel YoY (%)+3.2% +3.4%

Q2 FY2025 Year-over-Year Comparison (vs Q2 FY2024)

MetricQ2 FY2024Q2 FY2025
EPS (GAAP) ($)$0.64 $0.91
Adjusted EPS ($)$0.93 $1.04
Operating Profit ($USD Millions)$815 $863
Adjusted FIFO Operating Profit ($USD Millions)$984 $1,091
Gross Margin (%)22.1% 22.5%
Total Company Sales ($USD Billions)$33.9 $33.9

KPIs

KPIQ1 FY2025Q2 FY2025
eCommerce Sales Growth YoY (%)+15% +16%
Net Total Debt / Adjusted EBITDA (Rolling 4Q)1.69 1.63

Note: Q3 FY2025 results are pending (expected Dec 4, 2025) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Identical Sales without Fuel (YoY %)FY20252.7% to 3.4% (raised) 2.7% to 3.4% Maintained range after raise
Adjusted FIFO Operating Profit ($USD Billions)FY2025Raised lower end to $4.8–$4.9 $4.8–$4.9 Raised lower end
Adjusted EPS ($)FY2025Raised lower end to $4.70–$4.80 $4.70–$4.80 Raised lower end
eCommerce Operating Profit Impact ($USD Millions)FY2026N/A~+$400 New disclosure (raised outlook)
Expected Q3 Impairment Charges ($USD Billions)Q3 FY2025N/A~$2.6 New disclosure

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 FY2025)Previous Mentions (Q2 FY2025)Current Period (Q3 FY2025 context)Trend
eCommerce/DeliveryeCommerce +15% YoY; focus on customer experience and fresh eCommerce +16% YoY; improved margin mix and supply chain costs Expanded Instacart, DoorDash, Uber Eats; shift to hybrid model; neutral impact on identical sales Accelerating partnerships; pivot to profitable hybrid
AI/TechnologyOperational execution; running great stores Lower shrink via supply chain improvements Instacart AI “Cart Assistant” embedded in Kroger app Increasing AI enablement
Retail MediaN/AN/AThird-party delivery traffic to fuel retail media growth with new capabilities Strengthening monetization
Network/CapexN/ALeverage ratio noted (1.63) and ASR completion Close 3 automated facilities; pilot capital-light store automation; ROIC improvement Rationalizing footprint; capital-light pivot
Pharmacy/FreshStrong sales drivers (pharmacy, fresh) Mix effect from growth in pharmacy (lower margin) Continued emphasis on assortment and speed Resilient demand; mix considerations

Management Commentary

  • “We are building on a strong foundation with five consecutive quarters of double-digit eCommerce sales growth and increased profitability improvements. We are taking decisive action to make shopping easier, offer faster delivery times, provide more options to our customers, and we expect to deliver profitable sales growth as a result.” — Ron Sargent, Chairman & CEO .
  • “Every customer is different, and they expect more options to access fresh, affordable food, without compromising on the value or convenience… Being able to deliver food and groceries… in as little as 30 minutes is a winning model for Kroger and our customers.” — Yael Cosset, EVP & Chief Digital Officer .
  • Q2 margin drivers included the sale of Kroger Specialty Pharmacy, lower supply chain costs, and reduced shrink; partially offset by lower margin pharmacy mix and price investments .

Q&A Highlights

  • Q3 FY2025 call transcript is not yet available; investor focus will likely center on: size and composition of impairment, treatment in adjusted results, and pacing of eCommerce profit improvement through 2026 .
  • Expect clarifications on: identical sales neutrality of closures, margin trajectory as hybrid model scales, and the balance between third-party delivery partnerships and in-house automation .
  • Membership/loyalty and retail media synergies with Uber Eats and DoorDash may be probed for incremental traffic and monetization potential .

Estimates Context

  • S&P Global consensus for Q3 FY2025 EPS and revenue was unavailable to us at time of writing due to data access limitations. As a result, we do not present S&P Global estimates and will update post-publication when available.
  • Public earnings calendars indicate the event date (Dec 4, 2025), but non-S&P sources vary on point estimates; we deliberately refrain from using non-S&P consensus to avoid discrepancies .

Key Takeaways for Investors

  • The announced Q3 impairment (~$2.6B) is likely to dominate GAAP optics; focus on adjusted trends (identical sales, margins, adjusted FIFO OP) to assess core run-rate into holiday/fiscal Q4 .
  • The hybrid eCommerce pivot (Instacart primary fulfillment, DoorDash and Uber Eats expansion) should support near-term profitability and long-term ROIC via capital-light store-based automation pilots; watch KPIs on delivery speed, customer acquisition, and order quality .
  • Retail media could be a sleeper growth driver as third-party marketplaces broaden Kroger’s digital reach; monitor management commentary on media attach rates and CPG advertiser traction .
  • Margin drivers in Q2 (supply chain, shrink) are constructive; observe whether similar tailwinds persist in Q3 given mix effects from pharmacy growth and price investments .
  • Leverage ticked higher (1.63x net total debt/Adj EBITDA) alongside ASR completion; expect updates on capital allocation cadence post-ASR and buyback resumption timing .
  • Near-term trading: anticipate headline volatility around impairment and any Q3 identical sales commentary; medium-term thesis: hybrid eCommerce plus retail media monetization can underpin improved profitability in 2026 as non-cash charges reset the asset base .