Kroger (KR +0.62%) reported results for the first quarter of fiscal 2025 on June 19, 2025, delivering identical sales growth excluding fuel of 3.2% and adjusted EPS of $1.49, up 4%. Management announced accelerated store network optimization, a heightened focus on core operations, and raised fiscal 2025 guidance for identical sales excluding fuel to 2.25%-3.25%.
Decisive Store Network Optimization Aligned with Core Focus
Planned closures of approximately 60 underperforming stores over the next 18 months follow a pause on annual real estate reviews that occurred during the failed merger process with Albertsons Companies. These closures coincide with the completion of 30 major store projects this fiscal year and an anticipated acceleration in new store openings beginning in fiscal 2026, targeting high-growth geographies and increasing total square footage.
"To position our company for future success, this morning, we announced plans to close approximately 60 stores over the next eighteen months. We don't take these decisions lightly, but this will make the company more efficient, and Kroger will offer roles in other stores to all associates currently employed at affected stores."
— Ron Sargent, Chairman and Chief Executive Officer
This proactive footprint rationalization and simultaneous reinvestment strategy should structurally boost average store productivity metrics. The company is also reallocating capital toward markets and formats with superior long-term return on investment (ROI) potential.
E-Commerce Acceleration with Profitability Is Still Elusive
First-quarter e-commerce sales advanced 15% year over year, supported by unified leadership under Chief Digital Officer Yael Cosset and operational improvements such as reduced pickup wait times. However, management confirmed the e-commerce segment remains unprofitable, despite this being the "best profit improvement yet" on a sequential basis.
"We are seeing improvements in profitability at an increasing rate. But to be clear on the profitability, we're not profitable at this point. And we must become profitable in our e-commerce business, and we've got a lot of work to do."
— Ron Sargent, Chairman and Chief Executive Officer
Robust digital revenue growth drove market share gains and increased household engagement. However, the persistent lack of profitability in e-commerce remains a key execution risk that may require further optimization or strategic partnerships to unlock sustainable returns.
Gross Margin Expansion Amid Price Investments and Mix Shifts
FIFO gross margin rate, excluding fuel and adjustment items, climbed by 79 basis points, or 33 basis points adjusting for the divestiture of Kroger Specialty Pharmacy, helped by lower shrink and supply chain costs, but partially offset by mix headwinds from lower-margin pharmacy sales. In Q1, management implemented price reductions on more than 2,000 additional items and increased the Our Brands mix, while promoting margin neutrality.
"I think the positive news is that these pricing investments resulted in better sales, better gross margin, and happier customers. So I think it would be probably a good example of us continuing to invest in pricing while expanding our gross margin rate."
— Ron Sargent, Chairman and Chief Executive Officer
This ability to deliver tangible margin expansion -- despite substantial price investments -- highlights operational leverage through product mix, sourcing efficiencies, and private label leadership. These actions occurred in a highly promotional grocery environment.
Looking Ahead
Management raised full-year guidance for identical sales excluding fuel to 2.25%-3.25% for FY2025, with the second quarter expected to land at the midpoint of this range. Fiscal 2025 guidance for net operating profit and adjusted EPS remains unchanged, reflecting ongoing caution regarding macroeconomic uncertainty and continued fuel headwinds. Completion of the $5 billion accelerated share repurchase (ASR) program is targeted for the third quarter of fiscal 2025, with resumption of open market buybacks under the remaining $2.5 billion authorization planned through the end of the fiscal year.
