Key financial results

  • Adjusted earnings per diluted share was $1.09, representing 5% growth compared to the same period last year.Adjusted earnings per diluted share was $1.09. These results demonstrated the strength and flexibility of our operating model in a challenging sales environment
  • Adjusted FIFO operating profit for the quarter was $1.1 billion.Our adjusted FIFO operating profit in the quarter was $1.1 billion
  • Identical sales without fuel grew 0.2% during the quarter.This quarter, we achieved identical sales growth without fuel of 0.2%.
  • The FIFO gross margin rate, excluding rent, depreciation, amortization, and fuel, increased 13 basis points versus the second quarter of last year.Our FIFO gross margin rate, excluding rent, depreciation and amortization and fuel increased 13 basis points versus the second quarter of last year.
  • The operating, general, and administrative rate increased 33 basis points compared to the prior year, driven by investments in associate wages and health care costs.Our operating, general and administrative rate increased 33 basis points versus the second quarter of last year

Business segment results

  • E-commerce: E-commerce: Adjusted sales grew 20%, marking the second consecutive quarter of profitable growth for the segment.During the quarter, adjusted e-commerce sales grew 20%.
  • Retail Media: Retail Media: Revenue grew 24% during the quarter, which was the best performance since 2021, with media monetization up 88 basis points.Retail Media grew 24% during the quarter, our best since 2021
  • Pharmacy: Pharmacy: The Inflation Reduction Act created a 140 basis point headwind to identical sales without fuel, while a shift from brand to generic prescriptions reduced sales by an additional 60 basis points.
  • Produce: Produce: The Cyclospora outbreak impacted produce categories and cost the company 35 basis points of total company identical sales without fuel.Cyclospora outbreak, which cost us roughly 35 basis points of total company IDs without fuel, reflecting the impact of produce categories.
  • Fuel: Fuel: Gallon volume increased and outperformed the broader market by approximately 520 basis points, with fuel redemptions increasing nearly 6% versus last year.Our gallons increased in the quarter, outperforming the broader market by approximately 520 basis points.
  • Private Brands: Private Brands: Private Selection sales increased more than 14% during the quarter, and total brand penetration increased approximately 50 basis points.Private Selection sales increased more than 14% during the quarter

Capital allocation

  • The company completed 12 major store projects during the quarter to build market density and support future growth.During the quarter, we completed 12 major storing projects, building density in markets expanding our ability to serve customers and supporting future growth.
  • Net debt to adjusted EBITDA was 1.91x at the end of the quarter, which is below the target range of 2.3 to 2.5.
  • The company repurchased approximately $1.2 billion of shares in the first half of the year and plans to complete the remaining $2 billion authorization in the second half.Through the first half of the year, we repurchased approximately $1.2 billion of shares under our existing $2 billion authorization.
  • The industry is experiencing a slowdown in unit growth, which has persisted since the start of the year.Unit growth has slowed since the start of the year.
  • Customers are increasingly buying based on need and are prioritizing health and organic products despite budget pressures.Customers are buying more on need. At the same time, we're still seeing them prioritize their health.
  • Food inflation was modestly higher in the second quarter compared to the first quarter.overall food inflation, which was modestly higher than the first quarter.

Competitive landscape

  • The company maintained its market share gap against the Circana rest of market benchmark throughout the second quarter.We maintained the gap that we saw in Q1 in Q2.
  • Management noted that pricing on white label and basic shelf items has improved relative to competitors.what I've seen over this quarter is that our pricing relative to some of our competitors on what we call our white label, our basic shelf price has actually improved.

Macroeconomic environment

  • Fuel prices over $4 per gallon are negatively impacting consumer spending.We know that fuel over $4 has an impact on consumer spend.
  • Consumer confidence is soft, and reductions in SNAP benefits are putting pressure on household budgets.Reductions and SNAP benefits, higher fuel prices and softer consumer confidence are all putting pressure on household budgets.
  • Management expects inflation pressure to mount in the second half of the year compared to the first half.I would expect that the pressure is actually going to mount and we've seen a little bit more in Q2 than what we saw in Q1.

Growth opportunities and strategies

  • The company is executing a multiyear customer value plan to simplify promotions and improve value perception.This is a multiyear effort, and we'll have more to share at our investor update in October.
  • Management is focused on expanding the Smart Way opening price point brand, with plans to increase the number of items from 130 to 1,000 over the next year.we're also expanding [ Smart Way ], our opening price point brand with more items better coverage across the store
  • The company expects to close the acquisition of Giant Eagle in 2027.We continue to expect the transaction to close in 2027 and remain focused on working through the regulatory review process.
  • E-commerce strategy is focused on faster fulfillment, including delivery in less than an hour.We have renewed our focus on in-store fulfillment and fast delivery and we are seeing encouraging growth in delivery orders in less than an hour.

Financial guidance and outlook

  • Full year identical sales without fuel guidance was lowered to a range of 0.2% to 0.8%, down from the initial range of 1% to 2%.We are lowering our full year identical sales without fuel guidance to a new range of 0.2% to 0.8% and from our initial range of 1% to 2%.
  • The company maintained its full year guidance for adjusted FIFO operating profit of $5 billion to $5.2 billion.we are maintaining our full year guidance for adjusted FIFO operating profit of $5 billion to $5.2 billion
  • The company maintained its full year guidance for adjusted net earnings per diluted share of $5.10 to $5.30.adjusted net earnings per diluted share of $5.10 to $5.30.
  • The identical sales headwind from the Inflation Reduction Act is projected to accelerate to approximately 150 basis points in the fourth quarter.the identical sales without fuel impact from the inflation Reduction Act is projected to accelerate to approximately 150 basis points

Q2 2026 results

MetricResultChange
Identical sales without fuel0.2%Not stated
Adjusted EPS$1.095% growth
E-commerce sales growth20%Not stated
Retail Media growth24%Not stated
Adjusted FIFO operating profit$1.1 billionNot stated

How management sounded

Cautious (+10 on our -100 to +100 scale). Management expressed confidence in their long-term strategy and cost-saving initiatives, but tempered expectations due to specific sales headwinds and a cautious consumer environment. Management sounded more upbeat than on 2% of the 302 calls we cover; most companies sound positive on their own calls, so the comparison says more than the label.

Read the analyst Q&A summary and guidance and outlook for this call.

What to watch before the next call

  • The impact of the Inflation Reduction Act on pharmacy sales, which is expected to accelerate in the fourth quarter.
  • The progress of the multiyear customer value plan and cost-saving initiatives to be discussed at the October investor update.
  • The regulatory review process for the planned acquisition of Giant Eagle.

Earlier calls

  • Q1 2026 (Jun 18, 2026), tone Balanced: Kroger reported 1% identical sales growth and $1.58 adjusted EPS, with e-commerce turning profitable. Management is focused on cost savings to fund price investments amid consumer pressure.