KROGER CO (KR)·Q4 2025 Earnings Summary

Executive Summary

• Q4 2025 (fiscal Q4 2024 ended Feb 1, 2025) delivered solid topline and profitability: Sales $34.308B, diluted EPS $0.90, adjusted EPS $1.14; gross margin expanded to 22.7% and adjusted FIFO operating profit reached $1.174B, supported by lower shrink and the sale of Kroger Specialty Pharmacy. Identical sales excluding fuel rose 2.4%.
• Management highlighted the quarter “came in ahead of expectations” and issued FY2025 guidance: ID sales ex-fuel 2–3%, adjusted FIFO operating profit $4.7–$4.9B, adjusted EPS $4.60–$4.80; later raised ID sales ex-fuel to 2.7–3.4%, and the lower end of adjusted EPS/profit ranges. Bold: guidance raised.
• Call tone was constructive: digital profitability improved sequentially; AI tools aided shrink reduction; fuel was a headwind; first-quarter EPS expected similar to last year with Q2–Q4 above prior-year quarters. Bold: positive digital profit trend.
• Corporate actions/catalysts: $5B accelerated share repurchase underway under a new $7.5B authorization; interest expense guided to $650–$675M in 2025; Express Scripts agreement re-established pharmacy access; CEO transition to interim CEO Ron Sargent; quarterly dividend of $0.32 declared.

What Went Well and What Went Wrong

• What Went Well

  • Gross margin expanded 40 bps YoY to 22.7%, driven by the sale of Kroger Specialty Pharmacy and lower shrink; FIFO gross margin rate increased 54 bps. “Our adjusted FIFO operating profit was $1.2B… Adjusted EPS was $1.14.”
  • Digital momentum and profitability improved: “best digital profit improvement quarter we’ve seen yet,” with delivery and pickup cost to serve trending better.
  • Strategic AI deployment enhanced productivity and shrink reduction: “virtual AI‑powered assistant… 70,000 associates” and “generative AI‑powered sell‑through tool” improved Fresh and center store inventory.

• What Went Wrong

  • Fuel was a headwind: lower gallons sold and lower cents-per-gallon margin pressured quarterly and full-year results; OG&A rate increased (ex fuel) partly from KSP sale, incentives, and wage investments.
  • Pharmacy margins were lower; mix shift from GLP‑1 growth weighed on margin rates despite strong vaccine performance.
  • LIFO charge of $30M in Q4 (vs $18M credit prior year) and higher interest expense anticipated for FY2025 could dampen EPS growth cadence.

Financial Results

YoY comparison (ex-53rd week reference where provided):

KPIs and balance sheet/operational metrics:

Note: Estimates comparison vs Wall Street consensus from S&P Global was unavailable due to SPGI limit; management stated Q4 results “came in ahead of expectations.”

Guidance Changes

Additional cadence commentary: Q1 EPS similar to last year, Q2–Q4 above prior‑year quarters; LIFO ~ $130M for FY2025.

Earnings Call Themes & Trends

Management Commentary

• Interim CEO Ron Sargent: “Kroger operates from a position of strength… we have aggressive plans to build more stores and improve our share results… attract new households and increase loyalty… accelerate growth and create shareholder value.”
• Interim CFO Todd Foley: “Our adjusted FIFO operating profit was $1.2 billion… Adjusted EPS was $1.14… We are encouraged by improved digital profitability, and expect 2025 inflation of 1.5%–2.5% (excluding tariffs).”
• On capital allocation: “ASR initially purchased 65.6 million shares… full‑year 2025 net interest expense $650–$675 million.”
• On Our Brands: “More than 900 new items released in 2024… destination items that can only be found at Kroger… margin enhancer.”

Q&A Highlights

• EPS cadence: Q1 EPS similar to last year; Q2–Q4 above prior‑year quarters; inflation outlook 1.5%–2.5%; LIFO ~ $130M FY2025.
• Digital profitability drivers: improvement across pickup in‑store cost to serve, sheds throughput, and last mile density; path to re‑accelerate shed openings once volumes and profitability scale.
• Pricing & value: narrowing price gaps, focus on simpler promotions; all‑in value favorable to historical 5–8% vs big box competitor.
• Tariff exposure: limited China exposure (single digit); produce mid‑single‑digit exposure; proactive supplier diversification.
• Store expansion: capital shifting back to “storing”; 30 major projects in 2025 with acceleration beyond 2025.

Estimates Context

• S&P Global consensus (EPS and revenue) was unavailable due to SPGI data limits during retrieval; therefore, explicit beat/miss vs consensus cannot be shown this quarter. Management indicated Q4 results “came in ahead of expectations.”
• Guidance raises (ID sales, EPS/profit lower bound) and commentary on improving volumes and digital profitability suggest upward bias to outer‑quarter revenue/EPS estimates. Q1 EPS guide “similar to last year” anchors near-term expectations.

Key Takeaways for Investors

• Margin expansion continues: FIFO gross margin rate +54 bps in Q4, driven by shrink reduction and KSP sale; watch pharmacy margin mix headwinds from GLP‑1.
• Bold: Guidance raised twice in 2025 (ID sales, EPS/profit lower bound) with cadence calling for sequential EPS strength from Q2 onward.
• Digital profitability inflecting positively; sustained improvement across pickup/delivery cost to serve is a key multi‑quarter driver.
• Capital return and leverage: $5B ASR underway; interest expense rise to $650–$675M offsets some share count accretion—monitor net debt/EBITDA trajectory (1.79x at year‑end).
• Fuel remains a swing factor; ongoing headwind this quarter warrants caution near-term on volatility.
• Limited tariff exposure vs peers and proactive sourcing mitigate macro risks; inflation expected 1.5%–2.5% (ex tariffs).
• CEO transition and Express Scripts agreement are notable catalysts; ESI not baked into 2025 guidance—potential upside in pharmacy volumes beyond 2025.