KROGER CO Q4 FY2026 earnings call

• Customer experience: Made price investments, added store hours during holidays to improve checkout times and customer satisfaction. • Business simplification: Announced sale of Vitacost, plan to close nearly 50 underperforming little clinic locations, reviewed noncore assets. • Leadership team: Promoted Victor Smith, appointed new division presidents, elevated Milen Mahadevan for AI role. • E-commerce: Updated hybrid fulfillment model, early results from DoorDash and Uber Eats exceeded plans, expect convenience offerings to deliver over $1.5 billion in sales in 2026. • Store investments: Accelerated new store investments in 2025, expect to increase new store openings by 30% in 2026 with expansion into new regions.

In the fourth quarter, identical sales without fuel grew 2.4%, with a nearly 40 basis point headwind from the Inflation Reduction Act. Adjusted e-commerce sales grew 20% and is a $16 billion business. For the full year, identical sales without fuel grew from 1.5% to 2.9%, earnings per share grew by 9%. E-commerce was an important growth driver with adjusted e-commerce sales growing 20% in the quarter and built into a $16 billion business. Our Brands had a solid quarter with sales continuing to outpace national brands excluding egg deflation. Pharmacy had strong performance with growth in core scripts and GLP-1s but was impacted by the Inflation Reduction Act and shift to generic.

• Identical sales without fuel: Expected to be in range of 1% - 2%, with approximately 130 basis point headwind from Inflation Reduction Act; excluding IRA, range of 2.3% - 3.3%. Q1 expected near low end of full year range due to egg deflation. • Adjusted FIFO operating profit: Expected in range of $5 billion - $5.2 billion. • Adjusted free cash flow: Expected in range of $2.7 billion - $2.9 billion. • Adjusted net earnings per diluted share: Expected in range of $5.10 - $5.30. • E-commerce: Expected to accelerate from 2025 growth rates with continued strength in delivery and increased store-based fulfillment through third-party providers. • Loyalty program: Enhancing rewards program and revamping Kroger credit card in 2026. • Capital expenditures: Expected to be $3.8 billion - $4 billion with increased investments in new store growth.

Q: Can you dig into initiatives to significantly accelerate top line growth beyond price investments?

A: Greg says foundation is solid, work underway on cost of goods sold, imports, Kroger capability center, shrinkage, etc., and will work with team to pull together detail.

Q: Talk about specific quantifiable targets for AI's impact on customer experience and productivity?

A: David says AI is big opportunity, emerging proof points in operations, people space, Agentic shopping, with investments in 2026 and beyond, expanding Agentic shopping to all divisions.

Q: Contextualize absolute dollar level of investment in Q4 to stabilize market share and balance investment?

A: David says deliberate investment in promotions to close price gaps, more dollars invested in 2026 than last several years, focusing on optimizing cost structure.

Q: Outlook for free cash flow and CapEx distribution?

A: David says 2025 free cash flow strong due to operating performance, working capital, timing; 2026 CapEx prioritizes storing program, new stores, remodels, optimizing run the business maintenance CapEx.

Q: Opportunities in in-store experience?

A: Greg says early days, likes current store sizes, fresh offering, Our Brands, will work on price, operationalize strategy, move faster.

Q: Drivers for EPS quarterly cadence and gross margin?

A: David says Q1 ID sales near lower end of range due to egg deflation headwind, gross margin lower in Q1 due to egg deflation, EPS slightly lower in Q1.

Q: Hallmark of Kroger to win on unit volume longer term?

A: Greg says anchored in fresh foods, convenience, being local, personalization, being the best Kroger.

Q: Accelerating e-commerce beyond DoorDash and Uber Eats?

A: Ronald says excited about 20% growth in Q4, plan to be profitable in first half of 2026, focusing on refreshed website, AI, in-stock, delivery service.

Q: Fuel sales and profitability in 2026?

A: David says expecting fuel gallons and profits to be slightly down year-over-year.

Q: Value perception as lead indicator for food volume and center store SKU rationalization?

A: Greg says working on value equation as combination of cost and quality perception, need to optimize ecosystem including center store SKU rationalization and simpler prices.