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Kroger (KR) is nicely higher today after reporting its Q2 (Jul) results this morning. The grocer beat EPS expectations, a nice bounce back after missing last quarter, while revenue increased 2% yr/yr to $34.6 bln, roughly in line with expectations. While KR lowered its full-year identical-sales outlook excluding fuel to +0.2-0.8% from +1-2%, it reaffirmed adjusted EPS guidance of $5.10-5.30, which is encouraging investors given the softer sales environment.

• Identical sales: Identical sales excluding fuel increased just 0.2%, slowing from +1% in Q1. Traffic remained positive, though consumers stayed cautious, with smaller baskets and softer unit growth. Results were also pressured by pharmacy headwinds, Cyclospora-related produce weakness and egg deflation.
• Margins/Cost savings: FIFO gross margin excluding fuel, rent, depreciation and amortization increased 13 bps yr/yr, helped by improved eCommerce profitability, Retail Media, pharmacy mix and sourcing initiatives. Cost savings also came in ahead of plan, with KR expecting savings across sourcing, procurement, productivity and simplification to build through the second half.
• eCommerce/Media: Adjusted eCommerce sales increased 20% yr/yr, marking a second consecutive quarter of profitable eCommerce growth, while Retail Media grew 24%, its strongest growth since 2021, with monetization up 88 bps.
• Value/Brands: KR continues to emphasize value as consumers remain selective, using cost savings to fund price investments while improving its competitive positioning. Our Brands sales outpaced national brands, with penetration increasing roughly 50 bps, while Private Selection sales increased more than 14%.

Briefing.com Analyst Insight

KR's Q2 results were softer on the comp side, but overall encouraging. Traffic remained positive, though consumers continued to spend cautiously, with smaller baskets and slower unit growth, reinforcing the importance of value and helping support continued strength in private brands. More encouragingly, KR is protecting profitability despite the softer sales environment, with cost savings across sourcing, procurement and productivity helping offset pressure on the top line. Management expects those savings to build through the second half, while improving eCommerce profitability and continued Retail Media growth provide additional support to margins. Overall, KR appears to be balancing a cautious consumer backdrop with disciplined cost management while continuing to invest in value.