Kroger Co. shares fell 10.36% to $55.88 in premarket trading on Thursday after the grocery retailer reported first-quarter results that missed earnings expectations despite stronger-than-expected revenue. The decline in share price reflects investor concerns over narrowing gross margins and a maintained outlook that some may view as conservative amidst rising costs. The company's board approved an additional $2 billion share repurchase program in December 2025, with buybacks expected to be completed by the end of fiscal 2026.

Kroger reported adjusted earnings of $1.58 per share, missing the consensus estimate of $1.59, while revenue rose to $46.12 billion, topping analysts' expectations of $45.47 billion. Gross margin narrowed to 22.7% from 23.0% a year ago. The company attributed the decline to a higher mix of fuel sales, increased transportation costs, egg deflation, and planned price investments. Operating profit increased to $1.407 billion from $1.322 billion a year earlier. The company recorded a $52 million LIFO charge during the quarter, compared with a $40 million charge in the prior-year period.

Excluding fuel, identical sales increased 1.0% year over year. Sales excluding fuel and Vitacost increased 0.5% year over year. Adjusted eCommerce sales climbed 19% from a year earlier, while profit from Kroger Precision Marketing increased by more than 20% year over year. During the earnings call, management highlighted that the E-Commerce business, including media, turned profitable in the quarter, a milestone reached ahead of schedule. The company noted that cost savings from cost of goods sold were 30% ahead of plan for the quarter, helping to fund price investments.

Kroger affirmed its fiscal 2026 outlook for identical sales, excluding fuel, to increase 1% to 2%. The company expects adjusted earnings of $5.10 to $5.30 per share, compared with the Wall Street consensus estimate of $5.27. The company also maintained its forecast for FIFO operating profit of $5.0 billion to $5.2 billion, free cash flow of $2.7 billion to $2.9 billion, and capital expenditures of $3.8 billion to $4.0 billion. Management expects cost-saving initiatives to ramp up in the second half of the year to enhance profitability.

Key Financial Metrics

JP Morgan analyst Thomas Palmer maintains a Neutral rating on Kroger and lowers the price target to $70 from $72. The adjustment reflects a revised outlook on the stock's valuation potential.

Rating and Price Target

The brokerage firm continues to advise a hold position on the shares. The new price target of $70 represents a decrease from the previous estimate of $72.