The Kroger Company
06/26/2026 | Press release | Distributed by Public on 06/26/2026 14:03
Quarterly Report for Quarter Ending May 23, 2026 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following analysis should be read in conjunction with the Consolidated Financial Statements.
CAUTIONARY STATEMENT
This discussion and analysis contains certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), about our future performance. These statements are based on management's assumptions and beliefs in light of the information currently available to it. Such statements are indicated by words such as "accelerate," "achieve," "affect," "anticipate," "believe," "committed," "continue," "could," "creating," "drive," "enable," "estimate," "expect," "future," "goals," "initiatives," "maintain," "may," "model," "plan," "position," "strategy," "target," "trend," and "will," and similar words or phrases. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially. These include the specific risk factors identified in "Risk Factors" in our Annual Report on Form 10-K for our last fiscal year and any subsequent filings, as well as those identified in this Form 10-Q.
Various uncertainties and other factors could cause actual results to differ materially from those contained in the forward-looking statements. These include:
| ● | The extent to which our sources of liquidity are sufficient to meet our requirements may be affected by the state of the financial markets and the effect that such condition has on our ability to issue commercial paper at acceptable rates. Our ability to borrow under our committed lines of credit, including our bank credit facilities, could be impaired if one or more of our lenders under those lines is unwilling or unable to honor its contractual obligation to lend to us, or in the event that global pandemics, natural disasters or weather conditions interfere with the ability of our lenders to lend to us. Our ability to refinance maturing debt may be affected by the state of the financial markets. |
| ● | Our ability to achieve sales, earnings and incremental First-In, First-Out ("FIFO") operating profit goals may be affected by: labor negotiations; potential work stoppages; changes in the unemployment rate; pressures in the labor market; changes in government-funded benefit programs; changes in the types and numbers of businesses that compete with us; pricing and promotional activities of existing and new competitors and the aggressiveness of that competition; our response to these actions; the state of the economy, including interest rates, the inflationary, disinflationary and/or deflationary trends and such trends in certain commodities, products and/or operating costs; the geopolitical environment including wars and conflicts; unstable political situations and social unrest; changes in tariffs; the effect that fuel costs have on consumer spending; volatility of fuel margins; manufacturing commodity costs; supply constraints; diesel fuel costs related to our logistics operations; trends in consumer spending; the extent to which our customers exercise caution in their purchasing in response to economic conditions; the uncertainty of economic growth or recession; stock repurchases; changes in the regulatory environment in which we operate, along with changes in federal policy and at state and federal regulatory agencies; our ability to retain pharmacy sales from third-party payors; consolidation in the healthcare industry, including pharmacy benefit managers; our ability to negotiate modifications to multi-employer pension plans; our ability to attract and retain qualified individuals; natural disasters or adverse weather conditions; the effect of public health crises or other significant catastrophic events; the potential costs and risks associated with potential cyberattacks or data security breaches; the potential costs and risks associated with new technologies, including artificial intelligence; the success of our future growth plans; the ability to execute our growth strategy and value creation model, including continued cost savings, growth of our alternative profit businesses, and our ability to better serve our customers and to generate customer loyalty and sustainable growth through Fresh, Our Brands, Personalization and eCommerce; the outcome of litigation matters, including those relating to the terminated transaction with Albertsons Companies, Inc.; and the risks relating to or arising from our opioid litigation settlements, including the risk of litigation relating to persons, entities, or jurisdictions that do not participate in those settlements. |
| ● | Our ability to achieve these goals may also be affected by our ability to manage the factors identified above. Our ability to execute our financial strategy may be affected by our ability to generate cash flow. |
| ● | Our adjusted effective tax rate may differ from the expected rate due to changes in tax laws and policies, the status of pending items with various taxing authorities and the deductibility of certain expenses. |
| ● | We cannot fully foresee the effects of changes in economic conditions on our business. |
Statements elsewhere in this Form 10-Q and below regarding our expectations, projections, beliefs, intentions or strategies are forward-looking statements. While we believe that the statements are accurate, uncertainties about the general economy, our labor relations, our ability to execute our plans on a timely basis and other uncertainties described in this report and other reports that we file with the Securities and Exchange Commission ("SEC") could cause actual results to differ materially. We assume no obligation to update the information contained in this Form 10-Q unless required by applicable law.
FINANCIAL PERFORMANCE DATA
The following table provides highlights of our financial performance:
Financial Performance Data
($ in millions, except per share amounts)
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First Quarter Ended |
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||||||||
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|
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May 23, |
|
Percentage |
|
May 24, |
|
||||
|
|
|
2026 |
|
Change |
|
2025 |
|
||||
|
Sales |
|
$ |
46,121 |
|
2.2 |
% |
$ |
45,118 |
|
||
|
Sales without fuel |
|
$ |
40,858 |
|
0.2 |
% |
$ |
40,778 |
|
||
|
Identical sales excluding fuel and Adjusted Items(1) |
|
|
1.0 |
% |
N/A |
|
|
3.2 |
% |
||
|
FIFO gross margin, excluding rent, depreciation and amortization, fuel and Adjusted Items, bps (decrease) increase |
|
|
(0.09) |
|
N/A |
|
|
0.79 |
|
||
|
OG&A rate, excluding fuel and Adjusted Items, bps increase |
|
|
0.16 |
|
N/A |
|
|
0.63 |
|
||
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Operating profit |
|
$ |
1,407 |
|
6.4 |
% |
$ |
1,322 |
|
||
|
Adjusted FIFO operating profit |
|
$ |
1,544 |
|
1.7 |
% |
$ |
1,518 |
|
||
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Net earnings attributable to The Kroger Co. |
|
$ |
903 |
|
4.3 |
% |
$ |
866 |
|
||
|
Adjusted net earnings attributable to The Kroger Co. |
|
$ |
980 |
|
(1.6) |
% |
$ |
996 |
|
||
|
Net earnings attributable to The Kroger Co. per diluted common share |
|
$ |
1.46 |
|
13.2 |
% |
$ |
1.29 |
|
||
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Adjusted net earnings attributable to The Kroger Co. per diluted common share |
|
$ |
1.58 |
|
6.0 |
% |
$ |
1.49 |
|
||
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Dividends paid |
|
$ |
215 |
|
1.9 |
% |
$ |
211 |
|
||
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Dividends paid per common share |
|
$ |
0.35 |
|
9.4 |
% |
$ |
0.32 |
|
||
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Share repurchases |
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$ |
213 |
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N/A |
|
$ |
181 |
|
||
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(Decrease) increase in total debt, including obligations under finance leases compared to prior fiscal year end |
|
$ |
(571) |
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N/A |
|
$ |
40 |
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||
| (1) | Identical sales, excluding fuel, were adjusted to exclude stores involved in labor disputes in Colorado in the first quarter of 2025. Identical sales, excluding fuel, were excluded for the first four weeks of the first quarters of 2026, 2025 and 2024 for stores involved in such labor disputes. |
SIGNIFICANT EVENTS
| ● | eCommerce sales increased 13% in the first quarter of 2026, compared to the first quarter of 2025. Excluding the effect of fulfillment center exits in markets where Kroger does not operate stores, the sale of Vitacost.com and the discontinuation of Ship Marketplace, eCommerce sales increased 19% in the first quarter of 2026. eCommerce sales include products ordered online and picked up at our stores and Delivery solutions. Delivery solutions include orders delivered to customers from retail store locations, customer fulfillment centers and orders placed through third-party platforms. eCommerce sales growth was led by demand for Delivery solutions. Our eCommerce business, including Media, was profitable this quarter. |
| ● | Identical sales, excluding fuel and the Labor Dispute, increased 1.0% in the first quarter of 2026, compared to the first quarter of 2025. Sales growth was led by performances in eCommerce, pharmacy, Fresh and Our Brands, partially offset by the effects from the Inflation Reduction Act of 130 basis points, a customer shift from brand to generic prescriptions of 40 basis points and egg deflation of 64 basis points. |
USE OF NON-GAAP FINANCIAL MEASURES
The accompanying Consolidated Financial Statements, including the related notes, are presented in accordance with U.S. generally accepted accounting principles ("GAAP"). We provide non-GAAP measures, including FIFO gross margin, FIFO operating profit, adjusted FIFO operating profit, adjusted net earnings and adjusted net earnings per diluted share, because management believes these metrics are useful to investors and analysts. These non-GAAP financial measures should not be considered as an alternative to gross margin, operating profit, net earnings and net earnings per diluted share or any other GAAP measure of performance. These measures should not be reviewed in isolation or considered as a substitute for our financial results as reported in accordance with GAAP.
We calculate FIFO gross margin as FIFO gross profit divided by sales. FIFO gross profit is calculated as sales less merchandise costs, including advertising, warehousing and transportation expenses, but excluding the Last-In, First-Out ("LIFO") charge, rent and depreciation and amortization. FIFO gross margin is an important measure used by management, and management believes FIFO gross margin is a useful metric to investors and analysts because it measures the merchandising and operational effectiveness of our go-to-market strategy.
We calculate FIFO operating profit as operating profit excluding the LIFO charge. FIFO operating profit is an important measure used by management, and management believes FIFO operating profit is a useful metric to investors and analysts because it measures the operational effectiveness of our financial model.
The adjusted net earnings, adjusted net earnings per diluted share and adjusted FIFO operating profit metrics are important measures used by management to compare the performance of core operating results between periods. We believe adjusted net earnings, adjusted net earnings per diluted share and adjusted FIFO operating profit are useful metrics to investors and analysts because they present more accurate year-over-year comparisons of our net earnings, net earnings per diluted share and FIFO operating profit because adjusted items are not the result of our normal operations. Net earnings for the first quarter of 2026 include the following, which we define as the "2026 Adjusted Items":
| ● | Charges to operating, general and administrative ("OG&A") of $62 million, $48 million net of tax, for transformation costs and $25 million, $19 million net of tax, for merger-related litigation costs (the "2026 OG&A Adjusted Items"). |
| ● | A loss in other income (expense) of $14 million, $10 million net of tax, for the unrealized loss on investments (the "2026 Other Income (Expense) Adjusted Item"). |
Net earnings for the first quarter of 2025 include the following, which we define as the "2025 Adjusted Items":
| ● | Charges to OG&A of $100 million, $77 million net of tax, for store closures; $15 million, $11 million net of tax, for merger-related litigation costs; $22 million, $17 million net of tax, for opioid settlement charges and vendor reserves and a credit to OG&A of $21 million, $16 million net of tax, for executive stock compensation for a former executive (the "2025 OG&A Adjusted Items"). |
| ● | A loss in other income (expense) of $19 million, $15 million net of tax, for the unrealized loss on investments (the "2025 Other Income (Expense) Adjusted Item"). |
| ● | A reduction to income tax expense of $7 million for executive stock compensation for a former executive income tax adjustment (the "2025 Income Tax Expense Adjusted Item"). |
| ● | A net charge to Sales, Merchandise costs and OG&A of $44 million, $33 million net of tax, for certain stores involved in labor disputes in Colorado in the first quarter of 2025 (the "Labor Dispute"). |
Please refer to the "Net Earnings per Diluted Share excluding the Adjusted Items" table below for reconciliations of certain non-GAAP financial measures reported in this Form 10-Q to the most directly comparable GAAP financial measures and related disclosure.
The following table provides a reconciliation of net earnings attributable to The Kroger Co. to adjusted net earnings attributable to The Kroger Co. and a reconciliation of net earnings attributable to The Kroger Co. per diluted common share to adjusted net earnings attributable to The Kroger Co. per diluted common share, excluding the 2026 and 2025 Adjusted Items:
Net Earnings per Diluted Share excluding the Adjusted Items
($ in millions, except per share amounts)
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First Quarter Ended |
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||||||
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May 23, |
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May 24, |
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Percentage |
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2026 |
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2025 |
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Change |
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||
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Net earnings attributable to The Kroger Co. |
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$ |
903 |
|
$ |
866 |
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(Income) expense adjustments |
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Adjustment for loss on investments(1)(2) |
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10 |
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15 |
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Adjustment for labor dispute charges(1)(3) |
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- |
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|
33 |
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Adjustment for store closures(1)(4) |
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- |
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|
77 |
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Adjustment for executive stock compensation for a former executive(1)(5) |
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- |
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(16) |
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Adjustment for merger-related litigation costs(1)(6) |
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19 |
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11 |
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Adjustment for opioid settlement charges and vendor reserves(1)(7) |
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- |
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17 |
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Adjustment for transformation costs(1)(8) |
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48 |
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- |
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Executive stock compensation for a former executive income tax adjustment |
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- |
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(7) |
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2026 and 2025 Adjusted Items |
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77 |
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|
130 |
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Adjusted net earnings attributable to The Kroger Co. |
|
$ |
980 |
|
$ |
996 |
(1.6) |
% |
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Net earnings attributable to The Kroger Co. per diluted common share |
|
$ |
1.46 |
|
$ |
1.29 |
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(Income) expense adjustments |
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Adjustment for loss on investments(9) |
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|
0.01 |
|
|
0.02 |
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|
|
|
Adjustment for labor dispute charges(9) |
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|
- |
|
|
0.05 |
|
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|
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Adjustment for store closures(9) |
|
|
- |
|
|
0.12 |
|
|
|
|
Adjustment for executive stock compensation for a former executive(9) |
|
|
- |
|
|
(0.03) |
|
|
|
|
Adjustment for merger-related litigation costs(9) |
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|
0.03 |
|
|
0.02 |
|
|
|
|
Adjustment for opioid settlement charges and vendor reserves(9) |
|
|
- |
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|
0.03 |
|
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|
|
Adjustment for transformation costs(9) |
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|
0.08 |
|
|
- |
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Executive stock compensation for a former executive income tax adjustment(9) |
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- |
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(0.01) |
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2026 and 2025 Adjusted Items |
|
0.12 |
|
0.20 |
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Adjusted net earnings attributable to The Kroger Co. per diluted common share |
|
$ |
1.58 |
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$ |
1.49 |
6.0 |
% |
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Average number of common shares used in diluted calculation |
|
615 |
|
664 |
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| (1) | The amounts presented represent the after-tax effect of each adjustment, which was calculated using discrete tax rates. |
| (2) | The pre-tax adjustments for loss on investments were $14 and $19 in the first quarters of 2026 and 2025, respectively. |
| (3) | The pre-tax adjustment for labor dispute charges was $44. |
| (4) | The pre-tax adjustment for store closures was $100. |
| (5) | The pre-tax adjustment for executive stock compensation for a former executive was $(21). |
| (6) | The pre-tax adjustments for merger-related litigation costs were $25 and $15 in the first quarters of 2026 and 2025, respectively. |
| (7) | The pre-tax adjustment for opioid settlement charges and vendor reserves was $22. |
| (8) | The pre-tax adjustment for transformation costs was $62. Transformation costs primarily include costs related to third-party professional consulting fees associated with business transformation and cost savings initiatives. |
| (9) | The amount presented represents the net earnings per diluted common share effect of each adjustment. |
RESULTS OF OPERATIONS
Sales
Total Sales
($ in millions)
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First Quarter Ended |
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May 23, |
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Percentage |
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May 24, |
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Percentage |
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2026 |
|
Change(1) |
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2025 |
|
Change(2) |
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Total sales to retail customers without fuel(3) |
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$ |
40,463 |
|
0.2 |
% |
$ |
40,401 |
|
1.1 |
% |
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Supermarket fuel sales |
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|
5,263 |
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21.3 |
% |
|
4,340 |
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(12.5) |
% |
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Other sales(4) |
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|
395 |
|
4.8 |
% |
|
377 |
|
9.6 |
% |
||||||||
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Total sales |
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$ |
46,121 |
|
2.2 |
% |
$ |
45,118 |
|
(0.3) |
% |
||||||||
| (1) | This column represents the percentage change in the first quarter of 2026, compared to the first quarter of 2025. |
| (2) | This column represents the percentage change in the first quarter of 2025, compared to the first quarter of 2024. |
| (3) | eCommerce sales are included in the "Total sales to retail customers without fuel" line above. eCommerce sales increased 13% in the first quarter of 2026, compared to the first quarter of 2025. Excluding the effect of fulfillment center exits in markets where Kroger does not operate stores, the sale of Vitacost.com and the discontinuation of Ship Marketplace, eCommerce sales increased 19% in the first quarter of 2026. eCommerce sales include products ordered online and picked up at our stores and Delivery solutions. Delivery solutions include orders delivered to customers from retail store locations, customer fulfillment centers and orders placed through third-party platforms. eCommerce sales growth was led by demand for Delivery solutions. |
| (4) | Other sales primarily relate to external sales at food production plants, other pharmacy services, third-party media revenue and data analytic services. The increase in the first quarter of 2026, compared to the first quarter of 2025, is primarily due to an increase in third-party media revenue. |
Total sales increased in the first quarter of 2026, compared to the first quarter of 2025, by 2.2%. The increase was primarily due to an increase in supermarket fuel sales and identical sales, excluding fuel and the Labor Dispute, partially offset by the sale of Vitacost.com and closed stores. Total supermarket fuel sales increased 21.3% in the first quarter of 2026, compared to the first quarter of 2025, primarily due to an increase in the average retail fuel price of 22.7%. Total sales, excluding fuel and Vitacost.com, increased 0.5% in the first quarter of 2026, compared to the first quarter of 2025, which was primarily due to our identical sales increase, excluding fuel and the Labor Dispute, of 1.0%, partially offset by closed stores. Identical sales, excluding fuel and the Labor Dispute, for the first quarter of 2026, compared to the first quarter of 2025, increased primarily due to increased eCommerce, pharmacy, Fresh and Our Brands sales and increased spend per item, partially offset by a reduction in the number of units sold, and the effects from the Inflation Reduction Act of 130 basis points, a customer shift from brand to generic prescriptions of 40 basis points and egg deflation of 64 basis points.
We calculate identical sales, excluding fuel, as sales to retail customers, including sales from all departments at identical supermarket locations and Delivery solutions. We define a supermarket as identical when it has been in operation without expansion or relocation for five full quarters. We include Kroger Delivery sales from customer fulfillment centers in the identical sales calculation if the delivery occurs in an existing Kroger supermarket geography or when the location has been in operation for five full quarters; closed facilities in which the delivery occurs in an existing Kroger supermarket geography remain in the identical sales calculation, while closed facilities in which delivery does not occur in an existing Kroger supermarket geography are excluded from the identical sales calculation starting in the quarter the closure is announced. Although identical sales is a relatively standard term, numerous methods exist for calculating identical sales growth. As a result, the method used by our management to calculate identical sales may differ from methods other companies use to calculate identical sales. It is important to understand the methods used by other companies to calculate identical sales before comparing our identical sales to those of other such companies. Our identical sales results, excluding fuel, are summarized in the following tables. We used the identical sales, excluding fuel, dollar figures presented below to calculate percentage changes for the first quarter of 2026.
Identical Sales
($ in millions)
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Excluding Adjusted Items(1) |
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First Quarter Ended |
|||||||||
|
|
|
May 23, |
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Percentage |
|
May 24, |
|
Percentage |
|||
|
|
|
2026 |
|
Change(2) |
|
2025 |
|
Change(3) |
|||
|
Excluding Fuel |
$ |
39,802 |
1.0 |
% |
$ |
39,417 |
3.2 |
% |
|||
| (1) | Identical sales, excluding fuel, were adjusted to exclude stores involved in labor disputes in Colorado in the first quarter of 2025. Identical sales, excluding fuel, were excluded for the first four weeks of the first quarters of 2026, 2025 and 2024 for stores involved in such labor disputes. |
| (2) | This column represents the percentage change in identical sales in the first quarter of 2026, compared to the first quarter of 2025. |
| (3) | This column represents the percentage change in identical sales in the first quarter of 2025, compared to the first quarter of 2024. |
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|
|
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|
|
First Quarter Ended |
|||||||||
|
|
|
May 23, |
|
Percentage |
|
May 24, |
|
Percentage |
|||
|
|
|
2026 |
|
Change(1) |
|
2025 |
|
Change(2) |
|
||
|
Excluding Fuel |
$ |
40,136 |
1.2 |
% |
$ |
39,675 |
3.0 |
% |
|||
| (1) | This column represents the percentage change in identical sales in the first quarter of 2026, compared to the first quarter of 2025. |
| (2) | This column represents the percentage change in identical sales in the first quarter of 2025, compared to the first quarter of 2024. |
Gross Margin, LIFO and FIFO Gross Margin
Our gross margin rates, as a percentage of sales, were 22.7% in the first quarter of 2026 and 23.0% in the first quarter of 2025. This decrease resulted primarily from increased fuel sales, which have a lower gross margin rate, higher transportation costs, as a percentage of sales, egg deflation and increased price investments, partially offset by higher pharmacy margins, improved eCommerce profitability, sourcing improvements and lower depreciation and amortization, as a percentage of sales.
The following table provides the calculation of gross profit and gross margin in accordance with GAAP ($ in millions):
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|
|
|
|
|
|
First Quarter Ended |
|
|
|||||
|
|
|
May 23, |
|
|
May 24, |
|
|
||
|
|
|
2026 |
|
|
2025 |
|
|
||
|
Sales |
|
$ |
46,121 |
|
|
$ |
45,118 |
|
|
|
Merchandise costs, including advertising, warehousing and transportation and LIFO charge, excluding rent and depreciation and amortization |
|
|
35,493 |
|
|
|
34,551 |
|
|
|
Rent |
|
|
16 |
|
|
|
18 |
|
|
|
Depreciation and amortization |
|
|
139 |
|
|
|
193 |
|
|
|
Gross profit |
|
$ |
10,473 |
|
|
$ |
10,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
22.7 |
% |
|
|
23.0 |
% |
|
We define FIFO gross margin as FIFO gross profit divided by sales. FIFO gross profit is calculated as sales less merchandise costs, including advertising, warehousing and transportation expenses, but excluding the LIFO charge, rent and depreciation and amortization.
Our LIFO charge was $52 million in the first quarter of 2026, compared to $40 million in the first quarter of 2025. The increase in the LIFO charge was due to higher expected annualized product cost inflation for 2026, compared to 2025.
Our fuel sales lower our FIFO gross margin rate due to the very low FIFO gross margin rate, as a percentage of sales, of fuel sales compared to non-fuel sales. Excluding the effect of fuel and the Labor Dispute, our FIFO gross margin rate decreased 9 basis points in the first quarter of 2026, compared to the first quarter of 2025. This decrease resulted primarily from higher transportation costs, as a percentage of sales, egg deflation and increased price investments, partially offset by higher pharmacy margins, improved eCommerce profitability and sourcing improvements.
Operating, General and Administrative Expenses
OG&A expenses consist primarily of employee-related costs such as wages, healthcare benefit costs, retirement plan costs, utilities, and credit card fees. Rent expense, depreciation and amortization expense, and interest expense are not included in OG&A.
OG&A expenses, as a percentage of sales, were 17.3% in the first quarter of 2026 and 17.6% in the first quarter of 2025. The decrease in the first quarter of 2026, compared to the first quarter of 2025, resulted primarily from the effect of increased fuel sales, which decreases our OG&A rate, as a percentage of sales, continued execution of broad-based cost savings initiatives that drive administrative efficiencies, including store productivity, decreased multi-employer pension contributions and the 2025 OG&A Adjusted Items, partially offset by planned investments in associates, increased maintenance costs and the 2026 OG&A Adjusted Items.
Our fuel sales lower our OG&A rate, as a percentage of sales, due to the very low OG&A rate, as a percentage of sales, of fuel sales compared to non-fuel sales. Excluding the effect of fuel, the 2026 OG&A Adjusted Items, the 2025 OG&A Adjusted Items and the Labor Dispute, our OG&A rate increased 16 basis points in the first quarter of 2026, compared to the first quarter of 2025. This increase resulted primarily from planned investment in associates and increased maintenance costs, partially offset by continued execution of broad-based cost savings initiatives that drive administrative efficiencies, including store productivity and decreased multi-employer pension contributions.
Rent Expense
Rent expense remained relatively consistent, as a percentage of sales, for the first quarter of 2026, compared to the first quarter of 2025.
Depreciation and Amortization Expense
Depreciation and amortization expense decreased 18 basis points, as a percentage of sales, in the first quarter of 2026, compared to the first quarter of 2025. This decrease was primarily due to the fulfillment network closures in the fourth quarter of 2025.
Operating Profit and FIFO Operating Profit
Operating profit was $1.4 billion, or 3.05% of sales, for the first quarter of 2026, compared to $1.3 billion, or 2.93% of sales, for the first quarter of 2025. Operating profit, as a percentage of sales, increased 12 basis points in the first quarter of 2026, compared to the first quarter of 2025, primarily due to decreased OG&A and depreciation and amortization expenses, as a percentage of sales, and increased fuel operating profit, partially offset by lower FIFO gross margin.
FIFO operating profit was $1.5 billion, or 3.16% of sales, for the first quarter of 2026, compared to $1.4 billion, or 3.02% of sales, for the first quarter of 2025. FIFO operating profit, as a percentage of sales, excluding the 2026 and 2025 Adjusted Items, decreased 1 basis point in the first quarter of 2026, compared to the first quarter of 2025, primarily due to lower FIFO gross margin, partially offset by decreased OG&A and depreciation and amortization expenses, as a percentage of sales, and increased fuel operating profit.
Specific factors contributing to the trends driving operating profit and FIFO operating profit identified above are discussed earlier in this section.
The following table provides a reconciliation of operating profit to FIFO operating profit, and to Adjusted FIFO operating profit, excluding the 2026 and 2025 Adjusted Items:
Operating Profit excluding the Adjusted Items
($ in millions)
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First Quarter Ended |
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May 23, |
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May 24, |
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|
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2026 |
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2025 |
||
|
Operating profit |
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$ |
1,407 |
|
$ |
1,322 |
|
LIFO charge |
|
|
52 |
|
|
40 |
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|
|
|
|
|
|
|
|
FIFO Operating profit |
|
1,459 |
|
|
1,362 |
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|
|
|
|
|
|
|
|
|
Adjustment for labor dispute charges |
|
|
- |
|
|
44 |
|
Adjustment for store closures |
|
|
- |
|
|
100 |
|
Adjustment for executive stock compensation for a former executive |
|
|
- |
|
|
(21) |
|
Adjustment for merger-related litigation costs |
|
|
25 |
|
|
15 |
|
Adjustment for opioid settlement charges and vendor reserves |
|
|
- |
|
|
22 |
|
Adjustment for transformation costs(1) |
|
|
62 |
|
|
- |
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Other |
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(2) |
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(4) |
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|
|
|
|
|
|
|
2026 and 2025 Adjusted items |
|
|
85 |
|
|
156 |
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|
|
|
|
|
|
|
|
Adjusted FIFO operating profit excluding the adjusted items above |
|
$ |
1,544 |
|
$ |
1,518 |
| (1) | Transformation costs primarily include costs related to third-party professional consulting fees associated with business transformation and cost savings initiatives. |
Net Interest Expense
Net interest expense totaled $209 million in the first quarter of 2026, compared to $199 million in the first quarter of 2025. This increase resulted primarily from decreased interest income earned on our cash and temporary cash investments due to decreased balances of cash and temporary cash investments in the first quarter of 2026, compared to the first quarter of 2025, partially offset by decreased interest expense on the average total outstanding debt in the first quarter of 2026, compared to the first quarter of 2025.
Income Taxes
The effective income tax rate was 23.2% for the first quarter of 2026 and 21.3% for the first quarter of 2025. The effective income tax rate for the first quarter of 2026 differed from the federal statutory rate due to the effect of state income taxes, partially offset by the utilization of tax credits and the benefit from share-based payments. The effective income tax rate for the first quarter of 2025 differed from the federal statutory rate due to the effect of state income taxes, partially offset by the utilization of tax credits and deductions including the benefit from share-based payments, which includes the 2025 Income Tax Expense Adjusted Item.
Net Earnings and Net Earnings Per Diluted Share
Our net earnings are based on the factors discussed in the Results of Operations section.
Net earnings of $1.46 per diluted share for the first quarter of 2026 represented an increase compared to net earnings of $1.29 per diluted share for the first quarter of 2025. Excluding the 2026 and 2025 Adjusted Items, adjusted net earnings of $1.58 per diluted share for the first quarter of 2026 represented an increase of 6% compared to adjusted net earnings of $1.49 per diluted share for the first quarter of 2025. The increase in adjusted net earnings per diluted share resulted primarily from increased fuel earnings and lower common shares outstanding, partially offset by decreased adjusted FIFO operating profit excluding fuel.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow Information
The following table summarizes our net (decrease) increase in cash and temporary cash investments for the first quarter of 2026 and 2025 ($ in millions):
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|
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First Quarter Ended |
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May 23, |
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May 24, |
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2026 |
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2025 |
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Net cash provided by (used by) |
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|
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Operating activities |
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$ |
1,774 |
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$ |
2,149 |
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Investing activities |
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|
(1,255) |
|
|
(1,039) |
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Financing activities |
|
|
(980) |
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|
(331) |
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Net (decrease) increase in cash and temporary cash investments |
|
$ |
(461) |
|
$ |
779 |
Net cash provided by operating activities
We generated $1.8 billion of cash from operations in the first quarter of 2026 compared to $2.1 billion in the first quarter of 2025. The change in net earnings including noncontrolling interests is discussed in the Results of Operations section. Other significant items affecting net cash provided by operating activities include the following:
| ● | Cash flows from inventory were less favorable in the first quarter of 2026, compared to the first quarter of 2025, primarily due to improved in-stock conditions and increased fuel inventory costs, partially offset by the sale of Vitacost.com. |
| ● | Cash flows from accounts payable were more favorable in the first quarter of 2026, compared to the first quarter of 2025, primarily due to increased fuel inventory costs, management's focus on working capital improvements and timing of payments for capital expenditures, partially offset by the fulfillment network closures in the fourth quarter of 2025. |
Cash paid for income taxes decreased in the first quarter of 2026, compared to the first quarter of 2025, primarily due to applying a 2025 tax overpayment to reduce our 2026 estimated tax payment.
Net cash used by investing activities
Investing activities used cash of $1.3 billion in the first quarter of 2026, compared to $1.0 billion in the first quarter of 2025. The amount of cash used by investing activities increased in the first quarter of 2026, compared to the first quarter of 2025, primarily due to an increase in payments for property and equipment in the first quarter of 2026, compared to first quarter 2025.
Net cash used by financing activities
Cash used by financing activities was $980 million in the first quarter of 2026, compared to $331 million in the first quarter of 2025. The amount of cash used by financing activities increased in the first quarter of 2026, compared to the first quarter of 2025, primarily due to increased payments on long-term debt including obligations under finance leases.
Capital Investments
Capital investments, including changes in construction-in-progress payables and excluding the purchase of leased facilities, totaled $1.5 billion for the first quarter of 2026, compared to $1.2 billion for the first quarter of 2025. This increase is primarily due to the timing of major storing projects in the first quarter of 2026, compared to the first quarter of 2025. We expect our annual 2026 capital investments, including changes in construction-in-progress payables and excluding the purchase of leased facilities, to be relatively consistent with 2025. During the rolling four quarter period ended with the first quarter of 2026, we opened, expanded, relocated or acquired 26 supermarkets and completed 285 remodels. We define a remodel as a project that is greater than or equal to a cost of $8 per square foot. Total supermarket square footage at the end of the first quarter of 2026 decreased 1.0% from the end of the first quarter of 2025. Excluding mergers, acquisitions and operational closings, total supermarket square footage at the end of the first quarter of 2026 increased 1.0% over the end of the first quarter of 2025.
Debt Management
As of May 23, 2026, we maintained a $2.75 billion (with the ability to increase by $2.0 billion, subject to certain conditions), unsecured revolving credit facility that, unless extended, terminates on September 13, 2029. Outstanding borrowings under the credit facility, commercial paper borrowings and some outstanding letters of credit reduce funds available under the credit facility. As of May 23, 2026, we had no outstanding commercial paper and no outstanding borrowings under our credit facility. The outstanding letters of credit that reduce funds available under our credit facility totaled $3 million as of May 23, 2026.
Our credit agreement contains a financial covenant. As of May 23, 2026, we were in compliance with the financial covenant. Furthermore, management believes it is not reasonably likely that we will fail to comply with this financial covenant in the future.
Total debt, including both the current and long-term portions of obligations under finance leases, decreased $571 million as of May 23, 2026, compared to our fiscal year end 2025 debt of $17.6 billion. This decrease resulted primarily from the payment of $500 million of senior notes bearing an interest rate of 3.5%.
Common Share Repurchase Programs
On December 23, 2025, we announced that our Board of Directors approved a $2.0 billion share repurchase program to reacquire shares via open market purchase or privately negotiated transactions, including accelerated share repurchase transactions, block trades and pursuant to trades intending to comply with Rule 10b5-1 under the Exchange Act (the "December 2025 Repurchase Program").
On December 11, 2024, we announced that our Board of Directors approved a $7.5 billion share repurchase program to reacquire shares via open market purchase or privately negotiated transactions, including accelerated share repurchase transactions, block trades and pursuant to trades intending to comply with Rule 10b5-1 under the Exchange Act (the "December 2024 Repurchase Program").
On December 6, 1999, our Board of Directors approved a share repurchase program to repurchase common shares to reduce dilution resulting from our employee stock option and long-term incentive plans, under which repurchases are limited to proceeds received from exercises of stock options and the tax benefits associated therewith (the "1999 Repurchase Program"). The 1999 Repurchase Program is solely funded by proceeds from stock option exercises, and the tax benefit from these exercises.
During the first quarter of 2026, we invested $213 million to repurchase 3.1 million Kroger common shares at an average price of $67.77 per share, which includes excise tax on the shares repurchased. These shares were reacquired under the December 2025 Repurchase Program, the December 2024 Repurchase Program, and the 1999 Repurchase Program.
The December 2024 Repurchase Program was exhausted during the first quarter of 2026. As of May 23, 2026, there was $1.8 billion remaining under the December 2025 Repurchase Program, which excludes excise tax on share repurchases in excess of issuances. Amounts available under the 1999 Repurchase Program are dependent upon option exercise activity. The December 2025 Repurchase Program and the 1999 Repurchase Program do not have any expiration dates, but may be suspended or terminated by our Board of Directors at any time.
Liquidity Needs
We held cash and temporary cash investments of $2.9 billion as of May 23, 2026. We actively manage our cash and temporary cash investments in order to internally fund operating activities, support and invest in our core businesses, make scheduled interest and principal payments on our borrowings and return cash to shareholders through cash dividend payments and share repurchases. Our current levels of cash, borrowing capacity and balance sheet leverage provide us with the operational flexibility to adjust to changes in economic and market conditions. We remain committed to our dividend, and growing our dividend over time, subject to Board approval, as well as share repurchase programs and we will continue to evaluate the optimal use of any excess free cash flow, consistent with our capital allocation strategy.
We expect to meet our short-term and long-term liquidity needs with cash and temporary cash investments on hand as of May 23, 2026, cash flows from our operating activities and other sources of liquidity, including borrowings under our commercial paper program and revolving credit facility. Our short-term and long-term liquidity needs include anticipated requirements for working capital to maintain our operations, pension plan commitments, interest payments and scheduled principal payments of debt and commercial paper, servicing our lease obligations, self-insurance liabilities, capital investments, scheduled opioid settlement payments and other purchase obligations. We may also require additional capital in the future to fund organic growth opportunities, increased capacity of Delivery solutions, joint ventures or other business partnerships, property development, acquisitions, dividends and share repurchases. In addition, we generally operate with a working capital deficit due to our efficient use of cash in funding operations and because we have consistent access to the capital markets. We believe we have adequate coverage of our debt covenants to continue to maintain our current investment grade debt ratings and to respond effectively to competitive conditions.
For additional information about our debt activity in the first quarter of 2026, see Note 2 to the Consolidated Financial Statements.
CRITICAL ACCOUNTING ESTIMATES
We have chosen accounting policies that we believe are appropriate to report accurately and fairly our operating results and financial position, and we apply those accounting policies in a consistent manner. Our significant accounting policies are summarized in Note 1 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2026.
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. We base our estimates on historical experience and other factors we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could vary from those estimates. There has been no material change to our critical accounting estimates since the filing of our Annual Report on Form 10-K for the fiscal year ended January 31, 2026.
The Kroger Company published this content on June 26, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on June 26, 2026 at 20:03 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]