Kroger faced headwinds from a range of sources in the second quarter, slowing year-over-year growth in identical sales, which increased just 0.2% for the quarter, the company reported on Friday.
The relatively low growth in identical store sales – a comparable-sales measure that excludes fuel and generally covers supermarkets operating for five full quarters without relocation or expansion – was substantially lower than the 3.4% growth reported in the same quarter a year ago.
Kroger executives attributed the dip to a number of factors, including the cyclospora outbreak, which caused 12,883 illnesses, 570 hospitalizations and two deaths across 21 states, as of Sept. 11, according to the FDA.
Despite the slower comparable-sales growth, Kroger reported adjusted earnings of $1.09 per share on $34.62 billion in sales, beating the $1.05-per-share consensus estimate cited by Earnings Whispers. Sales were slightly below the $34.69 billion revenue estimate.
The Cincinnati, Ohio-based grocery chain’s shares were up 2.7% at $58.49 in late-afternoon trading Friday.
More headwinds for Kroger
Meat and seafood, natural foods and bakery delivered strong results in the quarter, according to Kroger CFO David Kennerley, who noted that the grocer’s pharmacy business also experienced healthy growth in prescriptions for the quarter, along with continued momentum in GLP-1 medications.
Those gains were partly offset by the Cyclospora outbreak, which CEO Greg Foran said reduced produce sales and shaved an estimated 35 basis points from the company’s identical-sales growth.
Kennerley added that Inflation Reduction Act-related changes in the pharmacy business created an approximately 138-basis-point headwind to the company’s identical sales without fuel.
“The ongoing shift from brand to generic prescriptions reduced sales by approximately 60 basis points,” Kennerley added.
The deflation of egg prices also hurt same-store sales growth by 30 basis points, according to Kennerley.
“Taken together, these headwinds represented a 265-basis-point drag on identical sales without fuel in the quarter,” he noted.
Shoppers prioritizing health
Healthy food options remained a priority for consumers in Kroger’s second quarter, according to Foran.
“We continue to see strong engagement in natural and organic, and we’re responding by expanding the assortment across the store,” he explained. “During the quarter, we added more than 600 new natural and organic items, giving customers more healthy choices at a great value.”
Kroger also is searching for new ways to make health and wellness more accessible and convenient, he said.
“In August, we launched a new grocery and prescription delivery offering with Instacart, allowing customers to combine groceries and eligible prescriptions into a single order across nearly all our banners,” he said.
E-commerce growth continues
Kroger reported a strong quarter for online sales, which grew 20% year over year, according to Foran, who explained the company expects the trend to continue industrywide.
“E-commerce is where most of the growth in our industry will come from over the next several years, and we intend to take our share of it,” he said. “We have built real capability, and our stores give us a strong advantage.”
Growing Kroger’s online sales means competing with companies like Amazon and Walmart, which have poured millions into their delivery infrastructure across the country in recent years.
Foran said he is encouraged by the growth in delivery orders fulfilled in less than an hour.
“Demand continues to shift towards faster fulfillment, and we’re positioning our network to meet it,” he said.
Retail media also experienced strong growth, with Kroger Precision Marketing up 24% year over year during the quarter – the company’s best performance since 2021 – while media monetization rose 88 basis points, Foran said.
“Stronger collaboration between our merchandising and media teams, expanded advertising inventory and optimization efforts improved visibility and conversion for our brand partners,” he said.
Giant Eagle acquisition on track
Kroger spent little time discussing its plan to expand further into the Northeast with the $1.65 billion purchase of Giant Eagle, a 197-store chain with 11 standalone pharmacies in Ohio, Pennsylvania, West Virginia, Maryland and Indiana.
But Foran did divulge that the deal is still moving forward. The deal, which is subject to regulatory approval, is expected to be completed sometime in 2027, according to Kroger.
“At its core, this is about serving more customers in more communities with the value, quality, and convenience they expect. We have a great deal of respect for the Giant Eagle team and the business they have built,” he said. “Like Kroger, they have strong local relationships, trusted brands, and a long history of serving their customers. We believe this combination creates a stronger business for customers, associates and the communities we serve.”
