Kroger is getting squeezed from two sides. Shoppers are putting fewer items in their carts just as Medicare drug-pricing changes take a bigger bite out of pharmacy revenue.
The grocer cut its annual same-store sales forecast to 0.2% to 0.8%, down from its previous expectation of 1% to 2% growth this week.
Part of that downgrade has little to do with grocery demand. Kroger expects the Inflation Reduction Act’s drug-pricing changes to knock roughly 140 basis points off the metric this year.
The pressure has not changed Kroger’s profit expectations. The company reaffirmed its full-year adjusted earnings outlook of $5.10 to $5.30 a share, putting more weight on its ability to protect margins through a weaker sales year.
Shoppers are buying on need
Same-store sales excluding fuel rose 0.2% in the second quarter. Customer traffic improved, but smaller baskets kept sales growth muted during the quarter.
Foran pointed to reductions in SNAP benefits, higher fuel prices, and softer consumer confidence as pressures on household budgets. Customers are still shopping, but they are putting more scrutiny on what makes it into the cart.
Not every drag came from stretched consumers. A cyclospora outbreak tied to fresh produce shaved roughly 0.35 percentage points from second-quarter same-store sales growth, with some of the disruption lingering into the third quarter.
Lower egg prices created another headwind for reported sales, while the Medicare changes weighed on pharmacy revenue. That leaves Kroger dealing with softer baskets alongside several pressures that have little to do with underlying grocery traffic.
Profit protection is carrying the stock
Kroger kept its full-year adjusted earnings outlook intact despite lowering its sales forecast, making profitability the more important part of the story as revenue growth slows.
Higher-margin businesses such as e-commerce and retail media remain part of that effort, giving Kroger more ways to generate profit beyond what customers put into their physical carts.
New CEO Greg Foran has pushed tighter sourcing, simpler operations, lower prices, faster delivery, and AI-driven personalized shopping since taking over in February.
Kroger is returning capital at the same time. The company raised its dividend by 11% earlier in the quarter, marking its 20th consecutive annual increase, and bought back $1B of shares during the quarter. Repurchases have reached $1.2B this year under a previously announced $2B authorization.
The sales outlook makes the rest of Kroger’s year less about getting shoppers through the door and more about getting them to buy another item once they are there. Until baskets recover, cost discipline and higher-margin businesses have to do more of the heavy lifting over time.