Image source: The Motley Fool. DATEFriday, June 20, 2025 at 10 a. ETCALL PARTICIPANTSChief Executive Officer — Ron SargentChief Financial Officer — David KennerlyNeed a quote from one of our analysts.
[ tected]RISKSFuel Performance: CFO Kennerly stated, "Fuel results were behind expectations this quarter, a headwind to our results.
" and indicated fuel fitability and volume are expected to remain a headwind for the remainder of the year.
Store Closures: Plans are in place to close apximately 60 underperforming stores over the next eighteen months. Management cited, "not all of our stores are dering the sustainable results we need.
"E-commerce Unfitability: CEO Sargent said, "we're not fitable at this point. And we must become fitable in our e-commerce, and we've got a lot of work to do.
"TAKEAWAYSIdentical Sales Without Fuel: Identical sales, excluding fuel and adjustment items, increased 3. 2% in Q1 FY2025, driven by strength in pharmacy, e-commerce, and fresh category sales.
Adjusted Earnings Per (EPS): Adjusted net earnings per diluted were $1. This represented a 4% increase from the prior year. E-commerce Sales: E-commerce sales grew 15%.
Management reported their "best fit imvement yet on a quarter-over-quarter basis.
"Our Brands (Private Label) Performance: Q1 FY2025 marked the seventh consecutive quarter of growth outpacing national brands; Simple Truth and Private Selection led this segment.
Fresh Category Performance: Fresh identical sales outperformed center store sales and continued to be a sales driver.
Store Closures: Announced plans to close apximately 60 underperforming stores over the next eighteen months, as disclosed in Q1 FY2025 with roles offered to all affected associates.
Store Investments: 30 major store jects slated for completion in 2025, with acceleration of new store openings expected in 2026 and beyond.
Gross Margin – FIFO Basis (Excluding Specified Items): Increased by 79 basis points in the first quarter of fiscal 2025 compared to the same period last year, mainly due to the sale of Kroger Specialty Pharmacy, lower shrink, and lower supply chain costs, partially offset by pharmacy mix; After adjusting for the pharmacy sale, gross margin imved by 33 basis points.
Operating G&A Rate: Increased 63 basis points in the first quarter compared to the same period last year, excluding fuel and adjustment items.
After excluding the impact of the pharmacy sale and pension contribution, the rate was relatively flat. Adjusted FIFO Operating fit: Adjusted FIFO operating fit was $1.
Debt Ratio: Net total debt to adjusted EBITDA was 1. 69; below target range of 2. Capital Return: $5 billion Accelerated Repurchase (ASR) gram expected to be by Q3 FY2025; Afterward, $2.
5 billion remains authorized for open market repurchases to be by the end of the fiscal year. Guidance Changes: Raised guidance for identical sales without fuel to 2.
25% for FY2025; All other full-year guidance, including net operating fit and adjusted EPS, was reaffirmed for FY2025. Associate Wage Investment: The average hourly wage now exceeds $19.
50 as of Q1 FY2025; including benefits, total value climbs above $25 per hour for many employees.
Labor Relations: Ratified labor agreements covering over 23,000 associates, reached a new agreement for 16,000 in the Mid-Atlantic and Seattle, and negotiations at King Soopers locations impacted by a fourteen-day strike.
Letter of Credit Draw by Ocado: Ocado fully drew £152 million under contractual rights in Q1 FY2025; management described as a "contractual thing and nothing more.
"Price Investments: Lowered prices on more than 2,000 additional ducts so far this year, coupled with simpler motions; management expects price investments to be "margin-neutral"SUMMARYThe Kroger Co.
57%) dered a 3.
2% increase in identical sales excluding fuel in Q1 FY2025, supported by pharmacy, e-commerce, and fresh, while announcing apximately 60 store closures over the next eighteen months as part of a renewed capital allocation strategy.
The company reported a 15% surge in e-commerce sales in Q1 FY2025, yet remains unfitable in the segment, and underscored plans to accelerate store investments, with 30 major jects scheduled for completion in 2025, but continues to expect fuel to be a fitability headwind through year-end.
The repurchase gram is expected to return $7.
5 billion to holders by the end of FY2025, with $5 billion through an accelerated repurchase (ASR) gram by Q3 FY2025 and the remainder via open market repurchases.
Management created a standalone e-commerce unit to imve focus and fitability, with digital initiatives including AI-enabled tools deployed in stores and fulfillment.
The company is increasing cost optimization efforts, targeting imved operational efficiency and re savings into pricing and customer experience enhancements.
Gross margin rate benefited from factors including lower shrink, imved sourcing, and the sale of the specialty pharmacy unit. Pharmacy growth created some margin mix pressure.
Market gains reported in areas with new store openings, with no notable shifts in higher-income customer behavior or nounced regional sales differences.
Several new labor contracts have stabilized workforce relations despite recent strikes, and management reported record-high associate retention rates.
Ocado's full letter of credit draw was contractually permitted and not characterized as a liquidity or strategic event by management.
Management reaffirmed macroeconomic caution and anticipates consumer caution to persist, with increased demand for private labels and value-driven motions across all income segments.
INDUSTRY GLOSSARYASR (Accelerated Repurchase): A method for a company to buy back a significant amount of its s quickly through an agreement with a third party, thereby reducing s outstanding and returning capital to holders.
GLP-1: Glucagon- peptide-1 medications, prescribed for diabetes and weight management, referenced in pharmacy sales trends. Kroger Specialty Pharmacy: A divested unit once operated by The Kroger Co.
, whose sale affected gross margin and operating metrics. Ocado: A U. -based grocery nology and fulfillment partner that operates under a contractual relationship with The Kroger Co.
For automated warehouse and dery solutions. OG&A Rate: Operating general and administrative expenses, presented as a percentage of sales, excluding fuel and certain adjustment items.
FIFO Gross Margin: Gross margin calculated using the first-in, first-out inventory accounting method, excluding fuel, rent, depreciation, amortization, and certain adjustment items.
CPG: Consumer Packaged Goods companies supplying branded ducts to The Kroger Co. And other retailers. ESI: Express Scripts, Inc.
, a major pharmacy benefit manager, mentioned in relation to pharmacy sales impact. Full Conference Call TranscriptRon Sargent: Good morning, everyone. Thank you for joining our call today.
Before jumping into the results, I wanted to a few thoughts since I last spoke to you in March.
After nearly four months as CEO, I've been very impressed with the many talented associates I've met across the company. The Kroger Co.
Has a strong bench of experienced operators and dedicated associates who can move our company forward. After spending my career in retail, one thing's : Retail always starts with the customer.
It's pretty simple. Our strategies are focused on our resources, which should be dedicated to how we can make the biggest impact on serving our customers.
Grounded in these principles, my priorities in this role are to position The Kroger Co. For long-term growth, accelerate top-line sales, and run great stores.
We can do this by better focusing on our core and by creating a growth culture in the company. The Kroger Co.
Has a long runway with many opportunities ahead, and I'm grateful to be part of the team as we transition to our next phase of growth.
In the past few months, we've made a number of changes to move faster and put increased focus on our customer.
We're directing investments toward jects that will grow our core, including plans to accelerate new store openings.
We are reassessing our capital allocation strategy to make sure we are spending our capital on jects 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.
We created a new e-commerce unit aligning all areas of the online customer experience under Yale Casa, our Chief Digital Officer.
We continue to elevate great leaders across the company by appointing Joe Kelly, our Senior Vice President of Retail Divisions, as well as new division presidents in King Soopers, Food 4 Less, and Texas, where we consolidated two divisions just last week.
These changes put talented executives in roles where they can support our stores and imve the customer experience.
We are making meaningful changes to the to create a culture that benefits our customers and our associates while imving long-term holder value.
In the first quarter, we're beginning to see the benefits of many of these changes. This morning, we announced solid first-quarter results with strong sales in pharmacy, e-commerce, and fresh.
The Kroger Co. Identical sales, excluding fuel and adjustment items, increased 3. Adjusted net earnings per diluted were $1. 49 in the first quarter, an increase of 4%.
Now let's take a closer look at the quarter. Strong performance in the fresh category supported our identical sales without fuel results. Fresh identical sales were better than center store sales.
We know our customers want healthier options, and we are well-positioned to der them across our fresh departments.
Ron Sargent: Turning to our brands, as more customers for value, we are excited the potential for the Our Brands. We are growing sales by offering high-quality ducts to customers at all budget levels.
This quarter, our brands grew faster than national brands for the seventh consecutive quarter.
Simple Truth and Private Selection led our sales growth, highlighting that customers want premium ducts while also spending less.
Our Brands is also creating new ducts that support customers' healthier eating habits.
For example, earlier this year, we identified tein as a major customer trend, and soon, Simple Truth will introduce 80 new tein ducts to our asment.
Targeted directly at this important trend, these ducts include everything from bars and powders to shakes, all from a natural and organic brand that customers trust.
This is just one way that The Kroger Co. And our brands are innovating to stay ahead of what our customers want.
E-commerce continues to be a key part of our with 15% growth in the first quarter driven by strong demand and dery.
To keep imving the customer experience, we are working to der more accurate orders faster and reduce pickup wait times.
These imvements are attracting new households to e-commerce and giving our current households more reasons to shop with us. As our e-commerce grows, it represents a bigger impact on our results.
Our teams are committed to growing both e-commerce sales and imving fitability. During the first quarter, we made good gress and dered our best fit imvement yet on a quarter-over-quarter basis.
To continue driving imvements, our team is reviewing all aspects of our strategy and operations to imve the customer experience as well as the financial performance.
David will more on this topic later. We know that our best customers shop with us through both e-commerce and in stores, which makes it important for us to continue building and running great stores.
Today, we are on track to complete 30 major store jects in 2025, and looking forward, we expect to accelerate new store openings in 2026 and beyond.
High-growth geographies, growing our overall square footage, and adding new jobs. As I mentioned earlier, we're simplifying our and reviewing areas that will not be meaningful to our future growth.
Unfortunately, today, not all of our stores are dering the sustainable results we need. Also important to note, we paused our annual store review during the merger cess.
To position our company for future success, this morning, we announced plans to close apximately 60 stores over the next eighteen months.
We don't take these decisions lightly, but this will make the company more efficient, and The Kroger Co. Will offer roles in other stores to all associates currently employed at affected stores.
To recap, our top priorities are. We're going to move with speed. We're going to concentrate on our core, and we're going to run great stores. This is how we'll position The Kroger Co.
For long-term performance. Before David gets into more detail on our financial results, I'd to talk a little bit our broader operating environment.
Customers continue to spend cautiously in an uncertain economic environment. Many customers want more value, and as a result, they're buying more motional ducts and more of our brands' ducts.
They're also eating more meals at. The Kroger Co. Is well-positioned to support our customers' changing shopping habits.
We offer compelling motions and fuel rewards, outstanding Our Brands ducts, and personalized motions that offer families better savings on the ducts they use the most.
We're simplifying our motions to make it easier for customers to and to see value at the shelf. In fact, we've lowered prices on more than 2,000 additional ducts so far this year.
As part of our work to keep prices low, we're also watching the changing environment around tariffs.
Our model is flexible to respond to those kinds of shifts, and as a domestic food retailer, we expect a smaller impact than some of our competitors.
Where we do see potential tariff impact, we are actively looking for ways to avoid raising prices for our customers, and we consider price changes as a last re.
Tariffs have not had a material impact on our so far, and given what we know today, we do not expect them to going forward. I'd to spend a moment talking our associates.
Our associates are the backbone of our company and are the people who create a great customer experience. One of our top operational priorities is imving in-stock levels.
We imved in-stock rates in every division this quarter. I appreciate our associates' hard work every day to make this happen.
We continue to imve our associates' wages and benefits while in their development and well-being.
These investments include hourly pay, plus health care, and pensions, as well as nology that makes work easier in our stores, including a virtual AI assistant that is imving associate ductivity and engagement.
This well-rounded apach is ducing results, with both.