Kroger Stock Holds $56.40 Ahead of Q2 Earnings as Cost Control Takes Center Stage

Wall Street has an estimated $34.61 billion for Q2 revenue and an adjusted EPS of $1.06. Of course, those numbers are important, but the main focus is going to be the growth of operating costs relative to sales growth and whether they are improving.

Foran has been direct in Kroger talks about their cost base. Management has looked at negotiations with suppliers, organizational simplification, and fewer layers of management after costs outpaced sales growth. Clear improvements in cost leverage would help the overall story even if revenue fall close to the expected level.

Kroger reported $46.1 billion in revenue (up from $45.1 billion the previous year). Identical sales (ex fuel) increased by 1.0% and adjusted EPS was $1.58.

The strong area was digital. Adjusted eCommerce sales increased by 19% and Kroger Precision Marketing profit increased by more than 20%. Those businesses are very important, as grocery margins are very narrow and digital advertising and better eCommerce can generate more profitable earnings growth.

Pitfalls remain. Gross margin was down year-over-year from 23.0% to 22.7% due to transportation and fuel costs, deflation in the price of eggs, and profitability investments.

Kroger is still guiding for identical sales (excluding fuel) growth of 1.0-2.0 percent, adjusted FIFO operating profit of $5.0-$5.2 billion, adjusted EPS of $5.10-$5.30, and free cash flow of $2.7-$2.9 billion.

The company’s identifier sales (excluding fuel) growth of 1.0-2.0 percent supports a revenue growth rate increase as a positive surprise for investors. A guidance increase would be a positive surprise, while a cut would be much more damaging than a small EPS miss.

During fiscal 2025, Kroger had over $16 billion of eCommerce sales, and, although it had an automated fulfillment network, this was a financially tough effort. In fiscal year 2026, the company expects roughly $400 million of eCommerce operating-profit improvement from the fulfillment-network restructuring announced in 2025.

To emphasize the shift in strategy, more heavily focused on profitability, Kroger appointed Nate Faust as their chief eCommerce officer. Additionally, Kroger’s AI Shopping Assistant has the potential to improve personalization, basket size, and the monetization of advertising. The big focus for Kroger is how all of this is going to positively affect the bottom line.

For fiscal 2025, approximately $1.5 billion of Kroger’s operating profit came from alternative profit focused businesses. Precision Marketing is most notable within this segment as this business lines Kroger's consumers from the grocery business, and from a bottom line perspective, offsetting issues.

From a balance sheet perspective, net debt to adjusted EBITDA was 1.75 at the end of Q1, which is below Kroger’s target range of 2.30-2.50. Kroger also has a new authorization of $2 billion for share repurchasing, and they increased their annual dividend by 11 percent to $1.56 a share.

Increasing food inflation from higher diesel and oil costs is a mixed bag for Kroger. On one hand, higher food prices could lead consumers to spend more. This could in theory boost nominal sales. However, it's clear that freight and transportation costs are increasing. This would put a squeeze on these profits. Since Kroger has already reported that their gross margins have been negatively impacted by logistics and fuel costs this quarter, this is a considerable risk.

Higher fuel and freight costs, coupled with increased sales, mean Kroger's gross margins will be negatively impacted by higher transportation costs. A strong return on identical sales should slow the cost impact from logistics and justify a reacceleration of earnings.

Kroger is currently trading at $56.96 after several tests of $56.41. The area of interest is the horizontal level support confluence with an ascending trendline. Buyers have pivoted from that zone making it key support into earnings.

Kroger Stock Price Chart - Source: Tradingview

The range of resistance starts at $57.36 and continues with the moving average at $57.56. A break above that cluster would improve the structure of the recovery and bring $58.16 into focus. Above that, $58.42 and $58.97 form resistance.

RSI is currently bearish at 45, but is above its signal line which is around 36. Below $56.41 is $55.68 and $55.05.

As you can see, the biggest drivers of risk are increasing costs. It seems likely that management will be able to control costs and justify an increase in earnings for Kroger moving forward.

Key Levels

·       Latest chart price: About $56.96

·       Key support: $56.41

·       First resistance: $57.36

·       Moving-average resistance: $57.56

·       First upside target: $58.16

·       Higher resistance: $58.42 - $58.97

·       Secondary support: $55.68

·       Major support: $55.05

·       RSI: Around 45, recovering but still below 50

Kroger is scheduled to report Q2 earnings at 12:00 GMT (8:00 a.m. ET) today. Investors will focus on updates for cost discipline, identical sales, eCommerce profitability, growth plan for Precision Marketing, and if management keeps or improves their FY2026 guidance.

A sustained hourly close above $57.36 - $57.56 would strengthen the recovery and call for $58.16 and $58.42 - $58.97

Kroger's setup is constructive but earnings dependent. Improving eCommerce and buying back shares and increasing dividends adds support, but still execution matters for the margins. From a technical perspective, I am bullish as long as $56.41 hold, $57.36 - $57.56 is the first zone of confirmation. A breakdown of $56.41 shifts the focus to $55.68.