CINCINNATI — The Kroger Co. unveiled plans to shut about 60 underperforming stores in announcing solid identical-sales growth for the fiscal 2025 first quarter and earnings per share that topped Wall Street’s forecast.
Plans call for the supermarkets to be closed over an 18-month period, and the impacted locations aren’t concentrated in any specific geographies, said Ronald Sargent, chairman and interim chief executive officer. He noted that Kroger had suspended evaluations of its store base during the more than two-year regulatory process for its unsuccessful merger deal with Albertsons Cos.
“We’re simplifying our business and reviewing areas that will not be meaningful to our future growth,” Sargent told analysts in a June 20 conference call. “Unfortunately today, not all of our stores are delivering the sustainable results we need. It’s also important to note, we paused our annual store review during the (Albertsons Cos.) merger process. To position our company for future success, this morning we announced plans to close approximately 60 stores over the next 18 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.”
With the planned store closings, Kroger recorded a $100 million impairment charge in the first quarter but said it expects a “modest financial benefit” and to reinvest the savings back into the customer experience.
In the call, Chief Financial Officer David Kennerley said that “a key priority for Kroger is to improve ROIC” and, to that end, the company is “improving asset utilization and reallocating capital towards higher-return projects,” including efforts “to optimize our store network.”
“At the same time, we are actively investing for growth in new store projects,” Kennerley explained. “We expect to complete 30 major storing projects in 2025, focusing our investments in high-growth areas. We will continue to prioritize new store growth and expect these to be a meaningful contributor to our long-term growth model.”
Currently, Cincinnati-based Kroger operates 2,730 stores in 35 states and the District of Columbia under banners including Kroger, Ralphs, Fred Meyer, Dillons, Smith’s, King Soopers, Fry’s, QFC, Harris Teeter, City Market, Owen’s, Jay C, Pay Less, Baker’s, Gerbes, Pick ‘n Save, Metro Market, Mariano’s, Food 4 Less and Foods Co.
“We usually evaluate individual store performance on an annual basis, and we continue to do that,” Sargent said. “But we deferred closing any stores due to the merger process. So we see this as an opportunity to move these closed-store sales to other stores, and we think that should improve profitability. There’s really minimal financial impact on company results as a result of the store closures. The geography (of stores to be closed) is spread really around the country; it’s kind of ones and twos.”
Kroger also may step up new store openings, according to Sargent.
“New store openings are the biggest driver of market share gains, and we’re continuing to look at that,” he said. “And I think we’ll be investing to accelerate store openings going forward. We don’t have a number to share with you this morning, but it’ll be north of the 30 that we open this year.”
Sargent didn’t name any specific retail banner but cited the large-format Kroger Marketplace as one focus. Designed to better compete with Walmart, the Marketplace locations offer an expanded selection of groceries, general merchandise, departments and services.
“We are probably going to favor areas of the country that are growing faster than others,” he said. “We’re going to look at where we have competitive opportunities, or growth within cities that we operate in, but it’s really scattered around the country. And there will be a variety of store formats, although the Marketplace store is a terrific format, and many of them will be Marketplace stores.”
Quarterly results show no “material impact” from tariffs
For the first quarter ended May 24, Kroger totaled net income of $866 million, equal to $1.29 per diluted share on the common stock, compared with $947 million, or $1.29 per share, a year earlier. Excluding $130 million in adjustment items — including store closing, labor dispute and merger-related costs and other charges — net earnings were $996 million, or $1.49 per share, versus $1.05 billion, or $1.43 per share, a year ago, the company said. Analysts, on average, had projected adjusted EPS of $1.46.
First-quarter net sales were virtually flat at $45.12 billion, down 0.3% from $45.27 billion a year ago. Excluding fuel and adjustment items as well as year-ago sales of $917 million from the specialty pharmacy business (sold in October 2024), net sales in the quarter were up 3.7% year over year, Kroger reported.
Identical sales excluding fuel and adjustment items rose 3.2%, topping the 0.5% uptick in the fiscal 2024 quarter. E-commerce sales surged by 15%.
“We announced solid first-quarter results, with strong sales in pharmacy, e-commerce and fresh,” Sargent said.
He added, “Strong performance in fresh categories supported our identical sales without fuel results. Fresh identical sales were better than center-store sales. We know our customers want healthier options, and we are well-positioned to deliver them across our fresh departments.”
Kroger raised its guidance for full-year identical sales growth to 2.25% to 3.25% (compared with 2% to 3% previously) and reaffirmed its estimate for adjusted EPS (diluted) of $4.60 to $4.80.
“As part of our work to keep prices low, we’re also watching the changing environment around tariffs,” Sargent said. “Our business model is flexible to respond to those kinds of shifts, and as a domestic food retailer, we expect a smaller business impact than some of our competitors. Where we do see potential tariff impact, we are proactively looking for ways to avoid raising prices for our customers, and we consider price changes as a last resort. Tariffs have not had a material impact on our business so far, and given what we know today, we do not expect them to (do so) going forward.”