Kroger beats Q1 revenue estimates but misses on earnings as margins tighten

Kroger reported Q1 revenue of $46.1 billion, topping analyst estimates, while adjusted earnings narrowly missed as margins tightened.

"We are pleased with our first quarter results, but we know there is more work to do," Greg Foran, chief executive officer of Kroger, said.

Adjusted e-commerce sales rose 19% from a year earlier, while Kroger Precision Marketing, the company's retail media business, posted profit growth of more than 20%. Gross margin contracted to 22.7% from 23%, driven by higher transportation costs, egg deflation and planned price investments, partially offset by favorable pharmacy mix and improved e-commerce profitability.

Kroger reaffirmed its full-year guidance, calling for identical sales growth without fuel of 1% to 2% and adjusted earnings of $5.10 to $5.30 per share. The company expects free cash flow of $2.7 billion to $2.9 billion and capital expenditures of $3.8 billion to $4.0 billion.

Shares fell more than 8% on Thursday, the biggest single-day drop in months, as investors sought greater clarity on the company's strategic direction under Foran, who took the helm earlier this year. Jefferies analysts maintained a Buy rating with a $74 price target, describing Kroger's strategy as becoming more defined.

The results come as U.S. grocers navigate a cautious consumer environment. Inflation accelerated in May at its fastest pace in three years, with grocery prices edging higher. Kroger has been cutting prices on thousands of items to compete with Walmart and Costco, funding reductions through cost savings from direct imports and technology investments.

The guidance reaffirmation signals management expects steady demand despite margin headwinds. Investors will watch Kroger's next quarterly report for evidence that price investments are driving traffic gains without further eroding profitability.

This article is for informational purposes only and does not constitute investment advice.