Kroger (KR)

Grocery retail giant Kroger (NYSE:KR) missed Wall Street’s revenue expectations in Q3 CY2025, with sales flat year on year at $33.86 billion. Its GAAP loss of $2.02 per share was significantly below analysts’ consensus estimates.

Company Overview

With a sprawling network of over 2,400 locations offering digital pickup services, Kroger (NYSE:KR) operates supermarkets, pharmacies, and fuel centers across 35 states, offering customers groceries, household items, and private-label products.

Grocery stores are non-discretionary because they sell food, an essential staple for life (maybe not that ice cream?). Selling food, however, is a notoriously tough business as grocers must deal with the costs of procuring and transporting oftentimes perishable products. Plus, the costs of operating stores to sell everything from raw meat to ice cream and fresh fruit are high. Competition is also fierce because grocers and other peers such as wholesale clubs tend to sell very similar brands and products. On the bright side, grocery is one of the least penetrated categories in e-commerce because customers prefer to buy their food in person. Still, the online threat exists and will likely increase over time rather than dwindle.

Kroger competes primarily with Walmart (NYSE:WMT), Target (NYSE:TGT), Albertsons (NYSE:ACI), Ahold Delhaize (OTCMKTS:ADRNY), and regional grocery chains, as well as with Amazon (NASDAQ:AMZN) in the online grocery space.

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $147.2 billion in revenue over the past 12 months, Kroger is a behemoth in the consumer retail sector and benefits from economies of scale, giving it an edge in distribution. This also enables it to gain more leverage on its fixed costs than smaller competitors and the flexibility to offer lower prices. However, its scale is a double-edged sword because there is only so much real estate to build new stores, placing a ceiling on its growth. To accelerate sales, Kroger likely needs to optimize its pricing or lean into international expansion.

As you can see below, Kroger struggled to increase demand as its $147.2 billion of sales for the trailing 12 months was close to its revenue three years ago. This was mainly because it didn’t open many new stores.

This quarter, Kroger’s $33.86 billion of revenue was flat year on year, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 1.7% over the next 12 months, similar to its three-year rate. While this projection suggests its newer products will catalyze better top-line performance, it is still below average for the sector.

Number of Stores

Kroger operated 2,790 locations in the latest quarter, and over the last two years, has kept its store count flat while other consumer retail businesses have opted for growth.

When a retailer keeps its store footprint steady, it usually means demand is stable and it’s focusing on operational efficiency to increase profitability.

Same-Store Sales

The change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales gives us insight into this topic because it measures organic growth for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year.

Kroger’s demand within its existing locations has been relatively stable over the last two years but was below most retailers. On average, the company’s same-store sales have grown by 1.9% per year. Given its flat store base over the same period, this performance stems from a mixture of increased foot traffic at existing locations and higher e-commerce sales as demand shifts from in-store to online.

In the latest quarter, Kroger’s same-store sales rose 2.6% year on year. This performance was more or less in line with its historical levels.

Gross profit margins are an important measure of a retailer’s pricing power, product differentiation, and negotiating leverage.

Kroger has bad unit economics for a retailer, signaling it operates in a competitive market and lacks pricing power because its inventory is sold in many places. As you can see below, it averaged a 23.7% gross margin over the last two years.

Non-discretionary retailers, however, must be viewed through a different lens because they compete on the lowest price, sell products easily found elsewhere, and have high transportation costs to move goods. These dynamics lead to structurally lower gross margins, so the best metrics to assess them are free cash flow margin, operating leverage, and profit volatility, which account for their scale advantages and non-cyclical demand.

This quarter, Kroger’s gross profit margin was 23.3%, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting it strives to keep prices low for customers and has stable input costs (such as labor and freight expenses to transport goods).

Kroger was profitable over the last two years but held back by its large cost base. Its average operating margin of 1.9% was weak for a consumer retail business. This result isn’t too surprising given its low gross margin as a starting point.

Looking at the trend in its profitability, Kroger’s operating margin decreased by 1.7 percentage points over the last year. Kroger’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

This quarter, Kroger generated an operating margin profit margin of negative 4.6%, down 7 percentage points year on year. Since Kroger’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, and administrative overhead increased.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Kroger has shown mediocre cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.5%, subpar for a consumer retail business.

Kroger broke even from a free cash flow perspective in Q3. This cash profitability was in line with the comparable period last year but below its two-year average. In a silo, this isn’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Kroger historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 11.1%, somewhat low compared to the best consumer retail companies that consistently pump out 25%+.

Kroger reported $5.07 billion of cash and $25.2 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $8.07 billion of EBITDA over the last 12 months, we view Kroger’s 2.5× net-debt-to-EBITDA ratio as safe. We also see its $645 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was great to see Kroger’s full-year EPS guidance top analysts’ expectations. We were also happy its gross margin outperformed Wall Street’s estimates. On the other hand, its EPS missed and its revenue fell slightly short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 1.6% to $61.97 immediately after reporting.

Updated: January 7, 2026 at 8:51 AM EST

Before deciding whether to buy Kroger or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

Kroger falls short of our quality standards. To begin with, its revenue growth was weak over the last three years. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its declining EPS over the last three years makes it a less attractive asset to the public markets. On top of that, its gross margins make it more challenging to reach positive operating profits compared to other consumer retail businesses.

Kroger’s P/E ratio based on the next 12 months is 11.9x. This valuation multiple is fair, but we don’t have much confidence in the company. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $73.82 on the company (compared to the current share price of $61.82).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.