Kroger Cuts Buyback as Sales Growth Slows to 1% and Margins Narrow
The grocer reaffirmed its full-year adjusted EPS outlook of $5.10 to $5.30 despite identical sales without fuel slowing to 1.0% in the first quarter.
Kroger (KR) reported first-quarter adjusted earnings of $1.58 a share, up 6.0% from $1.49 a year earlier, as the supermarket operator navigated a pronounced deceleration in its core sales momentum.
Identical sales without fuel slowed to 1.0%, a sharp step down from the 2.4% rate in the fourth quarter and 3.2% a year ago, signaling that the top-line tailwinds the grocer enjoyed through much of 2025 have faded. Total company sales rose 2.2% to $46.1 billion, but excluding fuel and the divested Vitacost business, the increase was just 0.5%, underscoring how little organic volume drove the quarter.
Profitability came under pressure on multiple fronts. The GAAP gross margin compressed to 22.7% from 23.0% a year ago, squeezed by a higher fuel-sales mix, elevated transportation costs, egg deflation, and deliberate price investments. On a FIFO basis, the gross margin rate fell nine basis points year over year, reversing a trend that had seen the metric expand 49 basis points in the third quarter of 2025. Operating, general and administrative expenses also climbed, up 16 basis points, though that represented a narrowing from the 21-basis-point increase in the prior quarter as wage and hour investments continued. Adjusted FIFO operating profit edged up only 1.7% to $1.54 billion, a stark slowdown from the 7.1% growth posted in the fourth quarter.
The company pointed to a bright spot in its alternative-profit businesses, where Kroger Precision Marketing profit grew more than 20%, and in adjusted eCommerce sales, which rose 19% — a pace that held broadly steady with the prior quarter. Those gains, however, were not enough to offset the broader margin compression and the impact of a $52 million LIFO charge, up 30% from $40 million a year ago, which reversed a favorable inventory-accounting trend from the fourth quarter.
Kroger reaffirmed its full-year 2026 guidance: identical sales without fuel of 1.0% to 2.0%, adjusted FIFO operating profit of $5.0 billion to $5.2 billion, adjusted EPS of $5.10 to $5.30, and free cash flow of $2.7 billion to $2.9 billion. Management noted that the sales outlook includes an approximately 130-basis-point drag from the Inflation Reduction Act, a headwind that was only 38 basis points in the fourth quarter and 9 basis points for all of fiscal 2025.
The company also disclosed $62 million in pre-tax transformation costs tied to third-party consulting fees for business-transformation and cost-saving initiatives, a new line item not present in prior quarters. Depreciation and amortization fell 5.9% to $989 million, reflecting the impact of fulfillment-network impairments and store closures.
On the capital-return front, average diluted shares outstanding dropped 7.4% to 615 million, the result of a $7.5 billion repurchase program completed in fiscal 2025 and a new $2 billion authorization approved in December. Net total debt to adjusted EBITDA stood at 1.75, up from 1.69 a year ago, as the balance sheet absorbed the buyback spending.