Kroger Cuts 2026 Identical Sales Outlook After Q2 Growth Slows to 0.2%

Kroger cut its full-year 2026 identical sales without fuel outlook on Friday after second-quarter growth slowed to 0.2%, a sharp deceleration from the prior-year pace and a sign that the grocery chain is still working through a softer demand backdrop in parts of the business.

The company now expects full-year identical sales without fuel to rise 0.2% to 0.8%, down from the 1.0% to 2.0% range it gave in June. Kroger still reaffirmed its guidance for adjusted FIFO operating profit of $5.0 billion to $5.2 billion and adjusted earnings per diluted share of $5.10 to $5.30, suggesting management sees the pressure as more visible in revenue growth than in near-term profitability.

Guidance cut follows a weaker first half for identical sales

In its second-quarter earnings release, Kroger said identical sales without fuel rose 0.2% in the quarter ended August 15, down from 3.4% in the same period last year. For the first half, identical sales without fuel increased 0.6%. On a year-to-date basis that excludes adjustment items, the figure was 0.8%.

Management said the second-quarter identical-sales measure included an unfavorable 138 basis point effect from the Inflation Reduction Act. Kroger’s updated full-year outlook also includes an approximately 140 basis point headwind from the law. That means the reported sales trend was weaker than the company expected earlier in the year, even though the guidance reset still assumes some improvement from the first-half run rate.

Total company sales rose to $34.6 billion from $33.9 billion a year earlier. That increase did not translate into stronger core comparable growth because fuel sales and portfolio changes influenced the top line. Excluding fuel, the sale of Vitacost and the exit of certain fulfillment centers in markets where Kroger does not operate stores, sales increased only 0.1% from a year earlier.

The slowdown matters because identical sales without fuel is one of Kroger’s central operating gauges. It strips out a more volatile fuel business and focuses more closely on the underlying grocery, pharmacy and general-merchandise trend across comparable operations. A reading of 0.2% is still positive, but it marks a much slower pace than investors saw a year ago and helps explain why the company narrowed its full-year sales-growth expectations so sharply.

Profitability held up despite the slower sales pace

Kroger’s earnings picture was firmer than its sales growth. Operating profit increased to $971 million from $863 million a year earlier, and earnings per share rose to $1.05 from $0.91. Adjusted EPS came in at $1.09, up from $1.04. Adjusted FIFO operating profit was $1.076 billion, compared with $1.091 billion a year earlier, a modest decline that still left the company comfortable enough to keep its full-year profit outlook unchanged.

Gross margin was 22.4% of sales, down slightly from 22.5% a year earlier. Kroger said the lower reported gross margin rate reflected the mix effect of higher fuel sales, higher shrink, higher transportation costs and greater value delivered for customers. Those pressures were partly offset by improved eCommerce profitability and media, a favorable pharmacy mix, sourcing initiatives, tariff refunds, a lower LIFO charge, and reduced depreciation and amortization.

On a FIFO basis, excluding rent, depreciation and amortization and fuel, the gross margin rate increased 13 basis points from a year earlier. Kroger also said its operating, general and administrative rate, excluding fuel and adjustment items, increased 33 basis points. That pattern points to a business that is still finding support from margin initiatives, but not one with enough underlying sales momentum yet to avoid a guidance reduction.

Some of the strongest internal growth signals came from businesses outside the traditional center-store grocery comparison. Adjusted eCommerce sales grew 20% in the quarter, and Kroger Precision Marketing profit increased 24%. Management has been leaning on digital improvements, alternative profit streams and cost discipline to support earnings while it works to improve store execution and sales momentum.

Capital returns and the October investor update are the next milestones

Kroger also highlighted shareholder returns and balance-sheet flexibility. Earlier in the quarter, the company raised its dividend by 11%, marking its 20th consecutive year of dividend increases. During the second quarter it repurchased $1.0 billion of shares, bringing year-to-date buybacks to $1.2 billion under the $2 billion authorization announced in December 2025. About $800 million remained available at quarter-end, and Kroger said it expects to complete the repurchases by the end of fiscal 2026.

Net total debt to adjusted EBITDA stood at 1.91 at the end of the second quarter, compared with 1.63 a year earlier. That is still below Kroger’s stated target range of 2.30 to 2.50, giving the company room to keep investing in the business while returning capital to shareholders. The balance-sheet position helps explain why management was willing to maintain its profit and EPS outlook even as it lowered the sales forecast.

Chief Executive Officer Greg Foran said improving sales momentum remains a top priority, while Chief Financial Officer David Kennerley said the quarter’s earnings growth was driven by cost savings, strong pharmacy and fuel performance, and better eCommerce profitability. Their comments point to the central issue for the rest of 2026: Kroger is still generating earnings support from operational improvements, but it needs stronger demand trends if it wants sales growth to reaccelerate.

The company’s next scheduled milestone is an investor update meeting on October 20, when Kroger plans to provide additional details on strategic initiatives and longer-term financial targets. That event will give investors a clearer view of how management plans to rebuild sales momentum after a quarter that kept profits intact but forced a reset in revenue expectations.