By Evie Liu and Mackenzie Tatananni

Kroger stock was rising Thursday, even after the grocery chain reported a mixed fourth quarter and offered a soft outlook for the current fiscal year.

Kroger posted adjusted earnings of $1.14 a share for the quarter ended Feb. 1, topping analysts' estimates for $1.11, according to FactSet. Total sales of $34.3 billion narrowly missed Wall Street's call for $34.6 billion.

Earnings were down 15% from a year earlier, while sales declined more than 7%.

Much of the declines resulted from Kroger's divestiture of its specialty pharmacy business last year, but revenue also suffered because lower fuel prices reduced sales in that part of the business. Excluding these factors, Kroger's so-called identical sales grew by 2.4% year over year in the fourth quarter. The company defines identical sales as those at stores open for at least five full quarters without being relocated or expanded.

The stock jumped 2.4% on Thursday to trade at $64. Shares are up 27% over the past 12 months.

For fiscal 2025, Kroger said it expects identical sales without fuel to grow 2% to 3% and adjusted earnings to land between $4.60 and $4.80 a share, compared with 2024's $4.47. Analysts were expecting $4.81 a share.

Investments to diversify the business have added more ways for Kroger to achieve sustainable growth, said interim CFO Todd Foley in a statement.

The biggest U.S. supermarket chain is working to grow more rapidly even as higher prices for eggs and other groceries continue to pressure consumer spending. Management said on Thursday's earnings call that they expect inflation to be 1.5% to 2.5% in 2025, not including the effects of tariffs imposed this week.

"Inflationary pressures are not new to our business, and we're confident in our ability to navigate any inflationary environment," said interim CEO Ronald Sargent on the earnings call.

Foley said Kroger faces a relatively small effect from the tariffs, mostly in the fresh produce department. The grocer's merchandising and sourcing teams are working proactively to diversify their supplier base, he said.

The earnings report comes just a few days after the company announced the resignation of CEO Rodney McMullen following a board investigation into his personal conduct, which Kroger said was inconsistent with the company's ethics policy.

Kroger said on Monday that the conduct was unrelated to the company's business or other associates. Sargent, Kroger's lead independent director, will serve as chairman and CEO while the company searches for a permanent successor to McMullen.

McMullen's resignation is the latest change to Kroger's top executives over the past few months. Chief merchandising and marketing officer Stuart Aitken left the company in December. Last month, Kroger also hired PepsiCo veteran David Kennerley as its new CFO. He is scheduled to begin work on April 3.

Wall Street is generally unbothered by McMullen's exit.

Sargent, the interim CEO, is "familiar with the business and well-known and liked by Wall Street," wrote Telsey Group analyst Joseph Feldman on Monday, "We are surprised by the news but don't believe it will impact the near-term financial performance or strategy."

Kroger should continue to benefit from its various growth initiatives, he wrote, including expansion into new regions, better product assortment, a seamless digital experience, and stronger customer loyalty through personalization and paid membership.

The earnings report also comes amid a legal fight between Kroger and Albertsons after their merger attempt failed in December. The deal was blocked by a federal judge as the companies couldn't meet demands from antitrust regulators to divest from regions where they have larger market shares.

Shortly after the companies stopped pursuing the deal, Albertsons sued Kroger, saying the grocer didn't do enough to win regulatory approval for the deal. It is seeking billions of dollars in damages, including a $600 million termination fee. Kroger has denied those allegations.

The deal would have united the two largest supermarket operators in the country and allowed them to better compete with retailers like Walmart and Amazon.com.

Write to Evie Liu at evie.liu@barrons.com and Mackenzie Tatananni at mackenzie.tatananni@barrons.com

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March 23, 2025 20:55 ET (00:55 GMT)

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