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What were the key takeaways from The Kroger's earnings call?

- **E-commerce Turnaround**: Kroger's e-commerce business will be profitable in 2026, with $400 million in savings from closing underperforming fulfillment centers and leveraging third-party delivery partnerships.
- **Store Expansion Acceleration**: 14 new stores to break ground in Q4 and 30%+ growth in 2026 builds, targeting high-potential markets like Jacksonville, FL.
- **Profitability Improvements**: Gross margin up 49 bps, operating profit up 7%, and free cash flow strength supporting share buybacks ($2.5B remaining).
- **Customer Trends**: Middle-income households cutting discretionary spending, but natural/organic and e-commerce categories outperforming.
- **Strategic Investments**: AI workforce tools, media partnerships, and price promotions driving customer loyalty and efficiency.

**【CEO Summary Section】**
- Kroger delivered Q3 2025 revenue growth of 2.6% YoY, driven by strong e-commerce (17% growth) and pharmacy performance. E-commerce sales were boosted by third-party delivery partnerships (Instacart, DoorDash, Uber Eats), with 1 million orders fulfilled in the first month of the DoorDash partnership.
- The company announced the closure of 3 underperforming automated fulfillment centers, shifting to a hybrid model leveraging store-based fulfillment. This change is expected to improve e-commerce profitability by $400 million in 2026, making the e-commerce business profitable.
- Kroger is accelerating store expansion, with plans to break ground on 14 new stores in Q4 and a 30% increase in new store builds in 2026. The Harris Teeter banner will expand into Jacksonville, Florida.
- The company is investing in AI tools for workforce management and store operations, improving associate flexibility and customer service metrics.
- Customer trends show middle-income households are reducing discretionary spending, while higher-income customers continue to spend strongly. Food inflation and SNAP benefit pauses impacted Q3 sales, but identical sales on a 2-year stack basis grew 4.9%.

**【CFO Financial Commentary】**
- Adjusted FIFO operating profit was $1.1 billion, up 7% YoY, with adjusted EPS of $1.05. Gross margin improved 49 basis points due to brand performance and lower supply chain costs, offset by pharmacy mix effects.
- Operating expenses increased 27 basis points due to wage investments and pension contributions, but LIFO charges of $44 million impacted EPS by $0.04.
- E-commerce profitability improved sequentially, with pickup and delivery margins enhancing. Media business growth and third-party partnerships are creating new monetization opportunities.
- Free cash flow remained strong, with net debt/EBITDA ratio at 1.73, below the target range of 2.3-2.5. Share buybacks are expected to complete the remaining $2.5 billion authorization by year-end.
- Guidance updated: identical sales without fuel growth narrowed to 2.8-3.0%, and EPS raised to $4.75-$4.80, reflecting $0.07 LIFO headwind.

**【Q&A Key Highlights】**
- **Store Expansion & Capital Allocation**: Kroger is reallocating capital to new stores (30% increase in 2026 builds) and away from underperforming e-commerce infrastructure. Jacksonville, FL expansion targets middle-income growth markets.
- **CEO Search Progress**: Board expects to announce an external CEO in Q1 2026, prioritizing retail transformation experience and cultural fit.
- **E-commerce Profitability**: $400 million savings from fulfillment center closures will fund price investments, store upgrades, and margin expansion. Media partnerships with third-party delivery apps are driving incremental revenue.
- **Pharmacy Headwinds**: Inflation Reduction Act will reduce Q4 identical sales by 30-40 basis points but has no margin impact due to manufacturer rebates.
- **Competitive Environment**: Kroger is maintaining market share through promotions and brand differentiation, with 1,000 price reductions in Q3 and strong performance in natural/organic categories.


The Kroger Co. (KR) Q3 2026 Earnings Call Transcript

Revenue

Sales and Services Revenue

Financing Services Revenue

Other Revenue

Cost of Revenue

Cost of Goods and Services

Cost of Financing Services

Other Cost

Gross Profit

Other Operating Income

Operating Expenses

Selling, General and Administrative Expenses

Selling and Marketing Expenses

General and Administrative Expenses

Research and Development Expenses

Loss on Bad Debts

Loss on Impairment of Other Assets

Loss on Disposal of Assets

Other Operating Expenses

Operating Income

Non-Operating Income (Loss)

Income (Loss) from Affiliates

Income (Loss) from Associates

Income (Loss) from Joint ventures

Gain (Loss) on Other Investment

Gain (Loss) on Change in Fair Value

Gain (Loss) on Foreign Currency Exchange

Other Non-Operating Income (Loss)

Net Interest Expense

Interest Expense

Interest Income

Pretax Income From Continuing Operations

Income Tax Expense

Current Income Tax

Deferred Income Tax

Income Tax Adjustments

Net Income from Continuing Operations

Income from Discontinued Operations

Other Items Before Net Income

Net Income

Net Income Attributable to Minority Interests

Net Income Attributable to Owners of the Company

Preferred Stock Dividends

Other Adjustments

Net Income Attributable to Common Stockholders

Other Comprehensive Income

Total Comprehensive Income

Total Comprehensive Income Attributable to Minority Interests

Total Comprehensive Income Attributable to Owners of the Company

Basic EPS

Basic EPS from Continuing Operations

Basic EPS from Discontinued Operations

Diluted EPS

Diluted EPS from Continuing Operations

Diluted EPS from Discontinued Operations

KR

KR fundamentals

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