Kroger Co. (KR) Q1 2026 10-Q Summary
Business Context and Reporting Period
This filing covers the first quarter of fiscal year 2026, ended May 23, 2026. The Kroger Co. operates supermarkets, multi-department stores, and fulfillment centers across the United States. The company reported as a large accelerated filer with 612.6 million shares of common stock outstanding as of June 24, 2026.
Key Financial Metrics
| Metric | Q1 2026 | Q1 2025 |
|---|---|---|
| Sales | $46,121 million | $45,118 million |
| Operating Profit | $1,407 million | $1,322 million |
| Net Earnings (Kroger Co.) | $903 million | $866 million |
| Diluted EPS | $1.46 | $1.29 |
| Operating Cash Flow | $1,774 million | $2,149 million |
| Total Debt (Carrying Value) | $15,378 million | $15,875 million (FY2025 End) |
| Cash & Temporary Investments | $2,873 million | $3,334 million (FY2025 End) |
Material Changes vs. Prior Period
- Sales Growth: Total sales increased 2.2% year-over-year, driven primarily by a 21.3% increase in fuel sales due to higher retail fuel prices. Identical sales excluding fuel and labor disputes rose 1.0%.
- Profitability: Operating profit increased 6.4% to $1.407 billion. Diluted EPS grew 13.2% to $1.46, aided by a reduction in the weighted average shares outstanding (615 million vs. 664 million).
- Margins: GAAP gross margin decreased to 22.7% from 23.0%, impacted by the lower-margin fuel mix, egg deflation, and increased transportation costs. However, operating profit margin improved by 12 basis points.
- Cash Flow: Operating cash flow decreased by $375 million to $1.774 billion, largely due to less favorable inventory cash flows (increased fuel inventory costs) and higher capital investments.
- Debt Reduction: Total debt decreased by $571 million compared to the prior fiscal year-end, primarily due to the repayment of $500 million in senior notes.
Guidance, Outlook, and Risks
- Capital Allocation: The company repurchased $213 million of common stock in Q1 2026. The $7.5 billion December 2024 repurchase program was exhausted; $1.8 billion remains under the December 2025 program. Dividends increased to $0.35 per share.
- Capital Investments: Q1 capital investments totaled $1.45 billion (excluding lease buyouts). Management expects annual 2026 capital investments to be relatively consistent with 2025 levels.
- Legal Contingencies:
- Albertsons Merger: The merger was terminated in December 2024 following a preliminary injunction. Albertsons sued Kroger for a $600 million termination fee; Kroger filed counterclaims. Trial is scheduled for October 19, 2026.
- Opioid Litigation: Kroger finalized settlements with states and Native American tribes totaling up to $1,236 million over 11 years. As of May 23, 2026, $976 million of this liability is recorded on the balance sheet. Non-participating cases remain pending.
- Operational Risks: Management cites risks related to labor negotiations, inflation, supply constraints, and the impact of the Inflation Reduction Act on pharmacy margins.
Investor Verification Checklist
- Verify the impact of the Albertsons merger litigation on future earnings, specifically the potential $600 million termination fee claim and counterclaims.
- Monitor the opioid settlement payment schedule and the status of pending litigation from non-participating states and private parties.
- Assess the sustainability of fuel sales growth given the volatility of fuel prices and its dilutive effect on gross margins.
- Review the share count reduction trajectory to understand the EPS leverage provided by buybacks versus organic earnings growth.
- Track inventory levels and working capital management, as Q1 saw a significant cash outflow for inventory compared to the prior year.