Kroger eyes cost cuts as growth strategy rolls ahead

CINCINNATI — The Kroger Co. raised its fiscal 2025 guidance as Ronald Sargent, chairman and chief executive officer, reported strong second-quarter results and cited efforts to rein in costs — including store closings and job cuts — as well as bolster the store base.

“We’re happy to report another quarter of strong results, which demonstrates the clear and measurable progress we’re making on our key priorities,” Sargent told analysts in a Sept. 11 conference call.

In addition to its growth initiatives, Cincinnati-based Kroger is working to become more efficient, he noted, and to that end has begun a review of parts of its business.  

“We’re also looking at our costs, especially those expenses that don’t directly support our priorities or deliver value to our shareholders,” Sargent said. “As we shared last quarter, we’ve begun closing approximately 60 unprofitable stores. Last month, we also reduced our corporate administrative team by nearly 1,000 associates. While these decisions are difficult, they’re also necessary for the company’s long-term success.

“Additionally, in order to create greater focus and simplify our business, we’re reviewing all non-core assets to determine their ongoing contribution and role within the company.”

For the second quarter ended Aug. 16, net income totaled $609 million, equal to 91¢ per share on the common stock, up from $466 million, or 64¢ per share, a year earlier. Excluding investment gains, severance costs and merger-related charges (including a legal settlement with C&S Wholesale Grocers), net earnings were $695 million, or $1.04 per share, versus $681 million, or 93¢ per share, a year ago, Kroger said. Analysts, on average, had projected adjusted earnings per share of $1.

“We will continue to aggressively look for ways to reduce costs throughout the company,” Sargent said. “We believe that many cost opportunities remain.”

New stores, AI key to strategy

Kroger lifted its full-year 2025 estimate for adjusted EPS to $4.70 to $4.80 from the previous projection of $4.60 to $4.80. The company also hiked its identical sales growth forecast to 2.7% to 3.4% from the prior outlook of 2.25% to 3.25%.

“We’ve made strong progress so far this year, and we also know that we have a lot more work to do,” Sargent said. “Looking ahead, we’re focused on investments that will grow our core business. The first of these is new stores. We’re on track to deliver 30 major storing projects in 2025, and we’re accelerating new store projects with more efficient layouts and faster construction timelines. In 2026, we expect to increase store openings by 30%, helping us grow both in-store and online sales faster.”

Photo: ©COLLEEN MICHAELS – STOCK.ADOBE.COM

Kroger also is carving out a bigger role for artificial intelligence across its organization, Sargent said.

“While we are growing our physical footprint, we’re also modernizing our business to operate more efficiently and serve customers better,” he said. “Artificial intelligence is one of the key tools to help us get there. Accelerating our AI efforts is a natural step for Kroger, given our long history of leadership and data and machine learning. Where we’ve implemented AI in different parts of the organization, we’re seeing results, with more competitive pricing, shrink improvements and faster fulfillment, which enables two-hour pickup for customers. These are just a few examples of what AI is doing to help us better serve our customers, with more and bigger opportunities ahead to both support our associates and improve the customer experience.”

Price investments, private brands lure customers

At the top line, Kroger’s second-quarter net sales were virtually flat at $33.94 billion, ticking up from $33.91 billion in the prior-year period, which included $718 million from the since-divested Kroger Specialty Pharmacy. Excluding fuel and specialty pharmacy business, net sales rose 3.8% year over year, Kroger said. 

Identical sales excluding fuel and adjustment items grew 3.4%, well above the 1.2% uptick a year earlier. E-commerce sales climbed 15%. The ID sales gain marked Kroger’s sixth straight quarter of growth, led by pharmacy, e-commerce and fresh categories, with the latter fueled by meat and produce.

“These categories continue to outpace center-store sales and reflect the growing demand for healthier options,” Sargent said. “Our sales growth and fresh category shows that we’re making strong progress in the categories our customers care most about.

“Improving grocery volume is also important to us. We’re making strategic price investments, which led to another quarter of sequential improvement. In fact, since the beginning of the year, we’ve lowered prices on more than 3,500 incremental products across our stores, which is improving our price spreads against our major competitors.

“As we lower prices for our customers, we’re committed to doing so in a way that keeps our gross margins stable. We’re making our promotions simpler and have continued to reduce complex promotional offers. Additionally, we’re making it easier for non-digital customers to take advantage of all the value Kroger offers by reintroducing paper coupons in every store.”

Kroger’s Our Brands portfolio of own-brand products also continues to make its stores a shopper destination, Sargent told analysts.

“Beyond the price on the shelf, families are also looking for quality and value,” he said. “Our Brands products had another strong quarter, with sales growth again outpacing national brands. Our Brands offer unique products with high quality and represent a point of differentiation for Kroger. Simple Truth and Private Selection brands again led our growth. Looking ahead, we see Our Brands as a critical strategic asset, helping us grow sales and build loyalty with customers.”

For the 2025 first half, net income came in at $1.48 billion, or $2.20 per share, up from $1.41 billion, or $1.93 per share, in the year-ago period. Adjusted net earnings were $1.69 billion, or $2.53 per share, versus $1.73 billion, or $2.36 per share, a year earlier. Net sales were essentially flat.

“We expect to share an update on our strategic review during the third quarter,” Sargent added. “We’re confident that the outcome of our work will lead to both stronger e-com capabilities and a clear path toward profitability. Finally, we’re starting the foundational work to refresh our go-to-market strategy. This involves a deep dive into customer data and a rigorous assessment of our competitive positioning. This important work will set us up for even stronger performance in the future.”