Is Kroger a Buy After Its Latest Earnings Report?

Kroger (NYSE:KR) published its latest set of quarterly results before market open on Friday, and investors reacted by pushing the stock up slightly that trading session.

It wasn't a barn-burner of a quarter for the veteran supermarket operator, with modest rises in key fundamentals and only a minor beat on analyst profitability estimates. Yet there was enough to like in the results to satisfy Kroger bulls. Let's pick apart how the company did in the period.

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Gains, incremental and otherwise

Kroger's total sales for the quarter rose by 2% year over year to just over $34.62 billion. That was on the back of a marginal rise in identical (i.e., same-store) sales, excluding fuel, to slightly below $30 billion; this compared unfavorably to second quarter 2025's 3.4% gain in the metric (fuel is stripped out of the equation because of the frequent volatility in its price).

As for profitability, net income not in accordance with generally accepted accounting principles (non-GAAP, or adjusted) fell to $667 million from the year-ago profit of $695 million. Due to a reduction in share count, Kroger's most recent quarter's per-share adjusted profit was actually higher, at $1.09 from the second quarter of 2025's $1.04.

Neither headline metric was far from its consensus analyst estimate. On average, analysts tracking the veteran retailer were modeling total sales of $34.65 billion and adjusted net income of $1.06 per share.

The overarching story of the quarter for Kroger was a mix of positive and negative factors; for the most part, they nearly canceled each other out, resulting in only modest growth.

The company wrote in its earnings release that sales would have inched up only 0.1% -- barely a blip on the radar -- if it excluded fuel sales, its divestment of the albatross that was its Vitacost health and wellness e-commerce unit (which occurred early this year), and the shuttering of several fulfillment centers.

Similarly, Kroger's gross margin (22.4%) was essentially unchanged from the year-ago quarter. A rise in fuel sales was countered by increased transportation costs. Other negative factors included higher shrink (i.e., inventory that goes missing due to factors like theft, damage, and spoilage); positive ones were a 20% pop in adjusted e-commerce sales and a sales/volume mix in pharmacy sales the company described as "favorable."

The good and the bad

That positive-offset-by-negative mix extended to Kroger's full-year 2026 guidance.

Management trimmed both ends of its estimate for identical sales growth; it is now 0.2% to 0.8% over 2025, down from 1% to 2%. This is due to its estimate of a roughly 140-basis-point drag on pharmacy sales from adjustments under the government's Inflation Reduction Act, passed in 2022.

As for the bottom line, the company is maintaining its adjusted earnings per share (EPS) forecast of $5.10 to $5.30. That's encouraging, because it presages year-over-year growth of at least 5%. This matches the trailing second-quarter rate, and would be quite a solid gain in the typically slow-growth, low-margin world of big retail.

Looking at the exclusively positive side of the ledger, Kroger said it expects not only to continue paying its quarterly dividend but also to keep increasing it. That's a very comforting assertion, because it's handed out a disbursement every quarter since reinstating the payout in mid-2006. Since then, it has declared annual dividend raises for 20 consecutive years. This year's model was a chunky 11% hike to a new quarterly payout of $0.39 per share. It yields a very healthy 2.5%, well above the current average (under 1.1%) for all S&P 500 stocks, of which the grocery giant is a component.

Kroger also said it aims to continue its habitual share repurchasing activity. The plan is to expend the roughly $800 million remaining of the $2 billion authorized by the board of directors for that purpose this year.

Doing well enough

While none of these figures are drawing me in or driving me away from Kroger stock, I think the company didn't do badly in the quarter. I feel the most impressive aspect of the period was that 20% increase in e-commerce sales (although, somewhat frustratingly, we weren't given an exact dollar figure in the earnings release). For an old-line retailer, the company seems to be gaining a solid grasp of modern shopping trends.

To me, Kroger's performance shows its solid foundation as a large, relatively efficient supermarket chain operator with a massive customer base. This combines with a stock that's particularly appealing to income investors, given its comparatively high yield and management's habit of raising dividends. Kroger's equity feels like a safe and comforting buy these days.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Kroger. The Motley Fool has a disclosure policy.