Kroger reported first-quarter earnings Friday that came in ahead of Wall Street estimates, fueled by robust digital growth and margin expansion. But the grocery chain’s decision to shut 60 underperforming stores over the next 18 months, coupled with rising debt levels and cautious forward commentary, tempered investor enthusiasm.
Revenue for the quarter came in at $45.1 billion, roughly flat from a year ago, but adjusted earnings and operating profit rose modestly. Adjusted FIFO operating profit grew to $1.52 billion, while adjusted EPS came in at $1.49, up from $1.43 in Q1 2024.
Key Takeaways
Adjusted EPS rose to $1.49, beating analyst expectations
Identical sales excluding fuel increased 3.2%
eCommerce grew 15% YoY; the pharmacy segment is also strong
60 stores to close; $100M impairment charge booked
Net debt-to-EBITDA climbs to 1.69x as buybacks accelerate
Full-year sales guidance revised upward
Digital and pharmacy lead gains
Kroger reported 15% year-over-year growth in eCommerce, underscoring the strength of its delivery and pickup channels. Fresh food and pharmacy also contributed meaningfully to topline performance. Pharmacy sales, while lower-margin, helped lift same-store sales by 3.2%, excluding fuel.
Total sales were flat compared to the same quarter last year, partly due to the divestiture of Kroger Specialty Pharmacy, which contributed nearly $1 billion in Q1 2024.
Kroger’s gross margin expanded 100 basis points to 23.0%, driven by reduced shrink, supply chain efficiencies, and the shift away from low-margin business lines. The company also benefited from better product mix and ongoing investments in private-label brands, which continue to capture market share.
“We delivered a solid quarter by focusing on what matters—customers, associates, and execution,” CEO Ron Sargent said in a statement. “Strong growth in fresh, pharmacy, and eCommerce helped us navigate an uncertain environment.”
A quiet signal: Store closures on the horizon
Kroger said it would close about 60 stores across its network, marking one of the most significant rationalization efforts in years. While the company said these closures would produce a “modest financial benefit,” the move is widely seen as a response to changing customer behavior, regional saturation, and inflation-related margin pressure.
The company booked a $100 million impairment charge this quarter related to the closures. However, it emphasized that impacted associates would be offered roles elsewhere, and that the closures would not impact full-year financial guidance.
Debt rises as capital returns continue
Kroger’s net total debt jumped by $3.8 billion year-over-year, bringing its net debt-to-EBITDA ratio to 1.69x, up from 1.25x last year. The company attributed the increase to its $5 billion accelerated share repurchase (ASR) program, which is expected to complete in Q3.
Despite the rise in leverage, Kroger reaffirmed its commitment to capital returns, maintaining its quarterly dividend—which rose to $0.32 per share, up from $0.29 last year—and planning to resume open market repurchases under the remaining $2.5 billion authorization later this year.
The company also continues to invest heavily, maintaining capital expenditure guidance of $3.6 to $3.8 billion for the year, including ongoing upgrades to stores, supply chain systems, and tech infrastructure.
Guidance raised, but management stays cautious
Kroger raised its identical sales ex-fuel forecast to 2.25%–3.25% for 2025, reflecting the strong Q1 momentum. However, it left its adjusted EPS and free cash flow guidance unchanged, citing continued macro uncertainty.
Full-Year 2025 Guidance:
Identical Sales (ex-fuel): 2.25% – 3.25% (raised)
Adjusted EPS: $4.60 – $4.80 (unchanged)
Adj. FIFO Operating Profit: $4.7 – $4.9 billion
Free Cash Flow: $2.8 – $3.0 billion
Capex: $3.6 – $3.8 billion
Outlook
Kroger’s Q1 performance reflects solid execution in a mixed consumer environment. With margins improving, digital sales accelerating, and a disciplined capital allocation strategy, the grocer reaffirmed confidence in its full-year guidance. However, the planned store closures and rising debt suggest that operational efficiency—not expansion—is now a key focus.