Kroger lowered its annual sales guidance, saying the mix of inflation anxiety and a tighter race for shoppers is proving a headwind. It expects comparable sales excluding fuel to increase by as much as 0.8%, trimmed from a previous high-end target of 2%. That same-store metric covers locations operating for at least 15 months.
Management said the forecast incorporates the effect of federal talks that resulted in lower prescription costs, which are pressuring the pharmacy arm. For the quarter ended Aug. 15, comparable sales came in shy of expectations, but adjusted profit topped forecasts thanks to stronger e-commerce margins, tariff refunds and other items. The tariff refunds were small and were funneled into price investments.
CEO Greg Foran faces added scrutiny after the cut while he pushes to win share by reducing prices, upgrading store service and investing in employees, alongside a bigger e-commerce push. Foran, who took the helm in February, told analysts that households are staying cautious with spending as gas remains pricey. From the beginning of the year onward, unit sales growth has slackened as shoppers focus more on essentials. Food prices ticked up slightly last quarter versus the prior period.
With fuel costs elevated, he said inflation pressure has risen and could build further, and Kroger will keep working with suppliers to make sure any price moves are warranted. "Historically, when you get an environment like this, you start to see it flow through," Foran said. "It is something that weighs on my mind."
A parasite outbreak over the summer also pulled down demand. Executives said the drag is still around, though it is easing week by week.
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Shoppers overall are holding up, but after years of high inflation they are choosier: hunting for discounts, switching to store brands and, when it makes sense, shopping around or waiting for a better deal. Higher gasoline prices linked to the Iran War have further squeezed budgets recently, with lower-income customers feeling it most as they also contend with reduced government food aid.
Walmart, Albertsons and others have said in recent months they plan to keep food prices sharp to attract price-sensitive buyers. Kroger said it has been investing to bring prices down in select regions and is seeing promising early signs. The company got only a negligible sum in tariff refunds, which it funneled into those pricing cuts.
Foran has flagged bigger changes ahead. Kroger agreed to acquire Giant Eagle to broaden its presence in the Northeast and has brought in new senior leaders, including former Walmart executives. The company is also focused on better on-shelf availability, tighter merchandising and shrink control, and plans to enhance its value proposition while simplifying the promotional discounts it spotlights.
Kroger's stock had fallen about 9% year to date through Thursday, versus an 11% gain for the S&P 500, and it slipped 1.6% at Friday's open. Profit held up thanks to e-commerce and the tariff refunds, but the softer sales guide, pharmacy pressure and slower unit growth show how stretched consumers and stiffer price competition are shaping results. If you are noticing more deals and private labels on display, that is the strategy playing out in real time.
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