Kroger Q4 Earnings Call Highlights

Kroger NYSE: KR executives outlined what they described as a strong finish to fiscal 2025 and provided guidance for 2026, emphasizing increased price investment, ongoing cost-savings efforts, and efforts to accelerate e-commerce profitability. The call also marked newly appointed CEO Greg Foran’s early public comments on priorities as he begins his tenure.

Leadership transition and strategic priorities

Chairman Ronald Sargent opened the call by welcoming Foran as Kroger’s new CEO, describing his background in food retail and operational leadership. Sargent said Foran’s priorities align with work Kroger has focused on over the past year, including centering the customer, moving with urgency, strengthening e-commerce, accelerating media, and improving productivity to fund lower prices.

Sargent also highlighted steps Kroger has taken to “simplify the business,” including the announced sale of Vitacost and plans to close nearly 50 underperforming Little Clinic locations. He said the company continues to review non-core assets to evaluate their role and contribution.

Kroger also announced internal leadership moves, including the promotion of Victor Smith to Senior Vice President of Retail Divisions and the appointment of new division presidents in Atlanta, Fry’s, and Ralphs. Sargent said Kroger elevated Milind Mahadevan into a newly created role to lead artificial intelligence work across the company, signaling that AI is a priority for both customer experience and productivity initiatives.

Q4 and full-year 2025 results: market share improvement late in the year

Sargent said Kroger delivered “another quarter of strong results” and noted that in the final period of the year the company achieved positive market share growth, which he described as its strongest share performance since 2021. He attributed improved trends to price investments made throughout the year, while also pointing to improved shrink and productivity as factors supporting margins.

For the fourth quarter, Kroger reported identical sales without fuel growth of 2.4%, which management said included nearly a 40 basis point headwind from the Inflation Reduction Act. For the full year, identical sales without fuel grew 2.9% in line with guidance, and adjusted EPS was $4.85, up 9%.

Chief Financial Officer David Kennerley said Q4 adjusted EPS was $1.28, representing 12% growth year over year, and adjusted FIFO operating profit was $1.2 billion. Kennerley said food inflation moderated in the quarter versus Q3, with egg deflation a significant headwind that was partially offset by beef inflation.

Kennerley said Kroger’s FIFO gross margin rate (excluding rent, depreciation and amortization, and fuel) was flat in Q4 versus the prior year, driven by sourcing improvements, lower supply chain costs, and lower shrink, offset by price investments and a mix impact from pharmacy growth. For the full year, he said gross margin rate improved 14 basis points excluding fuel, adjustment items, and the effect of KSP, while Kroger invested more in price.

On the cost side, Kennerley said the operating, general, and administrative rate (excluding fuel and adjustment items) increased 21 basis points in Q4, primarily due to cycling real estate gains from a year earlier and labor investments to improve customer experience, partly offset by lower incentive plan costs and improved productivity.

E-commerce, Our Brands, and alternative profits

Management emphasized continued momentum in digital and owned brands. Sargent said adjusted e-commerce sales grew 20% in Q4 and has become a $16 billion business. He and Kennerley both said Kroger is making “meaningful improvements” in e-commerce profitability, with Sargent stating that changes to the company’s hybrid fulfillment model are expected to make the e-commerce business profitable in 2026.

Sargent also said early results from partnerships with DoorDash and Uber Eats exceeded initial expectations, and he characterized them as incremental and profitable. Kroger expects its convenience offerings, including Instacart, to deliver over $1.5 billion in sales in 2026.

In owned brands, Sargent said Our Brands posted a solid quarter and that excluding the impact of egg deflation, sales continued to outpace national brands. He said Simple Truth and Private Selection led growth, and Kroger introduced more than 1,100 new Our Brands products during the year, up from more than 900 the prior year.

Kennerley said Kroger’s alternative profit businesses—which include media, Kroger Personal Finance, and Insights—delivered $1.5 billion in operating profit in 2025, and he expects the media business to deliver double-digit growth in 2026.

Capital allocation and free cash flow

Kroger reported adjusted free cash flow of $3.9 billion in 2025, which Kennerley said exceeded expectations due to operating performance, working capital initiatives, and favorable year-end timing. He said the company’s net debt to adjusted EBITDA ratio remains below its long-term target range, providing financial flexibility, though management expects to move back toward target leverage over time.

Kennerley said Kroger completed its $7.5 billion share repurchase authorization during the year, including a $5 billion accelerated share repurchase program, and the board approved an additional $2 billion authorization in December that management expects to complete by the end of fiscal 2026.

On 2026 free cash flow, management guided to $2.7 billion to $2.9 billion, with Kennerley attributing the step-down partly to timing-related items in 2025 that are not expected to repeat. Capital expenditures are expected to be $3.8 billion to $4.0 billion, with increased investment in new store growth.

2026 outlook: higher price investment, IRA headwinds, and cost savings focus

For 2026, Kroger guided to identical sales without fuel growth of 1% to 2%. Kennerley said the Inflation Reduction Act is expected to create an approximately 130 basis point headwind to identical sales without fuel, due to lower reimbursement rates on key medications, while having “no impact on gross profit dollars.” Excluding that impact, he said Kroger would expect identical sales without fuel growth of 2.3% to 3.3%.

Kennerley said Q1 identical sales without fuel is expected to come in near the low end of the full-year range, primarily due to continued egg deflation, with trends expected to improve as that headwind eases. He also said units improved sequentially in 2025 and Q4 was the best quarter of the year on units, though units remained slightly down overall; for 2026, he said Kroger’s expectations include negative units in the first half with sequential improvement through the year.

Kroger guided to adjusted FIFO operating profit of $5.0 billion to $5.2 billion and adjusted net earnings per diluted share of $5.10 to $5.30. Kennerley said Kroger expects to increase price investments versus 2025 and continue investing in customer experience, including service and labor hours, while still expecting the FIFO gross margin rate (excluding fuel and adjustment items) to improve in 2026 through productivity and cost savings.

Management pointed to e-commerce and procurement as major contributors to expected incremental savings. Kennerley said Kroger plans to reduce e-commerce cost to serve by fulfilling more orders out of stores and leveraging third-party delivery providers, and he described procurement efforts spanning both cost of goods sold and goods not for resale, including renegotiating supplier agreements and going direct where intermediaries have historically been used.

Additional factors in the outlook included pharmacy trends and fuel. Kennerley said pharmacy sales growth is expected to moderate to low-to-mid single digits due to the IRA’s reimbursement impact and an accelerating shift from brand to generic, partially offset by continued GLP-1 adoption and script growth. He also said Kroger expects fuel gallons and profits to be slightly down in 2026 due to a combination of gallons and margins.

Foran, in his closing remarks and in Q&A, repeatedly emphasized faster top-line growth driven by value, strong execution in stores, and discipline on costs. He said his focus is on “operationalizing” the strategy already underway, improving consistency in areas like fresh, investing in customer experience, and removing “unproductive costs” to fund lower prices and better service. He also discussed the potential for center-store assortment optimization as part of improving the “ecosystem” across shelf availability, planograms, and store-based fulfillment for e-commerce.

About Kroger NYSE: KR

The Kroger Co NYSE: KR is one of the largest supermarket operators in the United States, offering a wide range of retail grocery and related services. Founded in Cincinnati in 1883 by Bernard Kroger, the company operates a portfolio of supermarket and multi-department store banners and provides customers with fresh foods, packaged groceries, deli and bakery items, meat and seafood, produce, and prepared foods. Kroger's stores commonly include pharmacy services and fuel centers, positioning the company as a broad-based neighborhood retail destination for everyday needs.

In addition to traditional in-store retailing, Kroger manufactures and distributes a variety of private-label brands and operates its own food production and supply-chain facilities.

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