Key takeaways from Kroger’s (KR) Q1 2025 earnings report

The Kroger Co. (NYSE: KR) recently reported mixed results for the first quarter of fiscal 2025, with earnings beating estimates and sales missing. The grocery giant’s stock rose following the announcement as the market reacted favorably to its positive full-year guidance.

The Cincinnati-headquartered company, which operates a chain of supermarkets and multi-department stores, has managed to navigate through the changing consumer behavior and economic uncertainties. Kroger’s stock has posted steady gains over the past several months, largely reflecting the company’s resilience amid industry-wide challenges. The shares have frequently outperformed the broader market, underscoring the strong investor confidence. Continuing the post-earnings momentum, KR reached a new high this week.

Mixed Q1

First-quarter net sales were $45.12 billion, broadly unchanged from the prior-year period. Identical sales, without fuel, increased by 3.2% during the three months, and e-commerce sales grew by 15%. The top line fell short of expectations, continuing the recent trend.

Adjusted earnings increased to $1.49 per share in the first quarter from $1.43 per share in the corresponding period of fiscal 2024. Net income was $866 million or $1.29 per share in Q1, compared to $947 million or $1.29 per share last year. Gross margin moved up to 23% in Q1 from 22% in the year-ago quarter. The company has a strong track record of delivering better-than-expected earnings, including in the April quarter.

From Kroger’s Q1 2025 earnings call:

“We are reassessing our capital allocation strategy to make sure we are spending our capital on projects that offer the highest returns. We are reviewing our non-core assets. We’re aggressively looking for ways to reduce costs throughout the company, and we expect to reinvest those cost savings directly into lower prices and additional store hours for our associates so that they can better serve customers. Finally, we have restructured our leadership team to ensure we have the right talent in place.”

Outlook

The management expects that the company will continue generating strong free cash flow, and it plans to actively invest in the business to drive long-term sustainable profit growth. For fiscal 2025, it expects identical sales, without fuel, to grow between 2.25% and 3.25%. Full-year adjusted earnings per share guidance has been reaffirmed in the range of $4.60 to $4.80. Kroger continues to expect adjusted free cash flow to be between $2.8 billion and $3.0 billion in FY25.

Shares of Kroger have gained about 12% since last week, with the management’s bullish outlook adding to the momentum. On Monday, the stock traded up 2% in the afternoon.