rewrite this title Private labels and cost discipline in focus as Kroger prepares for Q2 FY25 earnings | AlphaStreet

The Kroger Co. (NYSE: KR) is poised to publish its second-quarter 2025 earnings this week. The supermarket operator’s sales strategy focuses on attracting price-conscious customers and those who prefer cooking at home. The company’s affordable private-label products help it sustain sales volumes while mitigating the effects of inflation and shifting consumer behavior.

Q2 Report on Tap

The grocery chain’s second-quarter 2025 report is slated for release on Thursday, September 11, at 8:00 am ET. It is estimated that Q2 earnings, adjusted for special items, rose to $1.0 per share from $0.93 per share in the year-ago quarter. Analysts forecast a modest increase in second-quarter sales to $34.12 billion from $33.91 billion in Q2 2024.

Shares of Kroger have gained about 11% this year and are currently trading above their 52-week average price of $64.49. The company has consistently returned cash to shareholders through dividends and buybacks over the years, making the stock an attractive investment despite its relatively high valuation.

Q1 Outcome

In the first quarter, net sales remained broadly unchanged year-over-year at $45.12 billion. Identical sales, without fuel, increased by 3.2% in Q1, and e-commerce sales grew by 15%. Sales fell short of expectations, in line with the recent streak of underperformance. On an adjusted basis, Q1 earnings increased to $1.49 per share from $1.43 per share in the corresponding period of fiscal 2024. Net income was $866 million or $1.29 per share in the first quarter, compared to $947 million or $1.29 per share a year earlier. Gross margin moved up to 23% from 22% in the year-ago quarter. Earnings surpassed expectations, continuing the long-term trend.

From Kroger’s Q1 2025 earnings call

“We are reassessing our capital allocation strategy to make sure we are spending our capital on projects that offer the highest returns. We are reviewing our non-core assets. We’re aggressively looking for ways to reduce costs throughout the company, and we expect to reinvest those cost savings directly into lower prices and additional store hours for our associates so that they can better serve customers. Finally, we have restructured our leadership team to ensure we have the right talent in place.”

What to Expect

Recently, Kroger raised its identical sales growth guidance for fiscal 2025 to 2.25-3.25%, without fuel, while reaffirming full-year adjusted earnings per share guidance in the range of $4.60 to $4.80. It continues to expect adjusted free cash flow to be between $2.8 billion and $3.0 billion in FY25. The company said it expects to keep generating strong free cash flow and invest in the business to drive long-term sustainable profit growth.

The company suffered a setback after the court recently blocked its $25-billion merger with Albertsons, citing antitrust concerns. Following that, the management announced an extensive layoff that could affect hundreds of corporate employees, as part of restructuring the administrative team. It is on a cost-optimization drive, aimed at improving operational efficiency and enhancing customer experience through additional investments.

After retreating from last month’s all-time highs, Kroger’s stock has maintained a downtrend, declining about 8% during that period. On Monday, the stock opened almost flat and traded slightly higher in the early hours of the session.