By Dean Seal

Kroger's operating costs are growing faster than its sales, presenting a major challenge for the grocery chain's new management team.

"That's not sustainable, and frankly, it's not acceptable," Chief Executive Greg Foran, the former Walmart executive who took the helm earlier this year, said on a call with analysts. "Taking costs out of this business is not optional."

The grocer reported fiscal first-quarter results on Thursday, saying it posted a bigger profit while sales rose about 2% to $46.12 billion, ahead of analyst targets.

But costs are climbing as the company spends more to increase store hours, improve employee training and outfit workers with new uniforms. Higher fuel prices are driving up its freight costs and eating into gross margin, which tightened during the quarter instead of expanding as some analysts had expected.

Shares fell 6.5% to $57.80 on Thursday morning.

The company has also seen food inflation coming in at the low-end of expectations. The price of eggs has deflated, dragging on identical sales, or those from stores open for at least five full quarters.

Identical sales, excluding fuel, were up just 1% in the first quarter and are expected to repeat that performance in the second quarter while consumer spending remains under pressure, executives said.

Management told analysts on Kroger's earnings call that they are working to renegotiate with suppliers and remove complexity from the business to reduce costs. "That means fewer organizational layers, smarter ways of working," Foran said.

For the quarter ended May 23, Kroger posted a profit of $903 million, or $1.46 a share, compared with $866 million, or $1.29 a share, in the same quarter a year earlier.

Stripping out one-time items, adjusted earnings were $1.58 a share, a penny lower than what analysts had been forecasting.

(END) Dow Jones Newswires

June 18, 2026 10:19 ET (14:19 GMT)

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