Kroger Co. (KR.US) Q1 financial report is a mixed bag: revenue supported by essential grocery sales, but profits are eroded by aggressive price cuts and cost pressures.

The largest chain supermarket operator in the United States, Kroger Co. (KR.US), delivered a mixed performance in the latest financial quarter. Despite exceeding market expectations in sales, showing consumers' rigid demand for groceries in a tight budget environment, rising transportation costs, falling egg prices, and proactive price reduction strategies also squeezed the company's profitability. According to data released by Kroger Co. on Thursday, the company achieved revenue of $46.12 billion in the first quarter, an increase of about 2% year-on-year, higher than the average analyst expectation of $45.59 billion. Excluding fuel effects, comparable store sales increased by 1%, slightly better than Wall Street's expected increase of 0.96%. Net profit was $903 million, or $1.46 per share, an increase from $866 million and $1.30 per share in the same period last year. However, adjusted earnings per share excluding one-time items were $1.58, still 1 cent lower than market expectations. Profit margins were squeezed by multiple factors. The company stated that the slight decline in gross margin was mainly due to the increase in fuel sales, high transportation costs, and falling egg prices. These pressures were only partially offset by improvements in the pharmacy business, profitability from digital retail strategies, and optimization on the procurement side. Although gross margin (22.7%) was under pressure, lower than 23% in the same period last year, operating profit still increased due to a decrease in depreciation and amortization expenses, even though operating expenses increased. Looking ahead, Kroger Co. maintained its full-year performance guidance unchanged, expecting same-store sales to grow 1% to 2% in fiscal 2026 (excluding fuel business), with earnings per share remaining between $5.10 and $5.30. Faced with a high inflation environment for several years, American consumers are becoming increasingly budget-conscious, more inclined towards store brands and discounted items. Meanwhile, the recent surge in gasoline prices due to the Iran war has further intensifying financial pressure on households, and the inflation rate in the United States in May has accelerated to the highest level in over three years. In the food sector, prices of beef, coffee, and select products from Shenzhen Agricultural Power Group are still rising, prompting lower-income groups to focus more on value for money while affluent consumers continue to maintain their spending. In this context, Greg Foran, the new CEO who took office in February this year, has played a bold price card. He has already announced plans to implement the largest price reduction in Kroger Co.'s history, in order to compete for a larger market share amidst competition from Walmart Inc. (WMT.US), Costco Wholesale Corp. (COST.US), and Amazon.com, Inc. (AMZN.US) and others. The company is currently focusing on multi-category price reductions and enhancing service friendliness and efficiency in order to pave the way for long-term competition. Retail industry counterparts have also not relaxed, with Walmart Inc. and Costco Wholesale Corp. emphasizing that they will continue to prioritize value and attract budget-conscious customers with competitive prices. "We are pleased with our first quarter performance, but we are aware that there is still much work to be done," Foran stated in a declaration. Following the announcement of performance, Kroger Co.'s stock price experienced sharp volatility in pre-market trading, falling nearly 8% as of the time of writing.