Casey's (CASY) Q1 2027 Earnings Call Transcript - AOL

Motley Fool Transcribing, The Motley Fool

Wed, September 9, 2026 at 6:43 PM EDT

0

Image source: The Motley Fool.

DATE

Wednesday, Sept. 9, 2026 at 8:30 a.m. ET

CALL PARTICIPANTS

TAKEAWAYS

Need a quote from a Motley Fool analyst? Email pr@fool.com

RISKS

SUMMARY

Management reported growth in net income and EBITDA driven by margin expansion in the fuel and prepared food categories. The company integrated the Fikes acquisition by remodeling 24 legacy Cefco locations during the quarter while managing expenses related to labor and credit card fees. Casey's General Stores, Inc.(NASDAQ:CASY) maintained its full-year guidance, anticipating continued store expansion and inside sales growth despite temporary disruptions from store remodels.

INDUSTRY GLOSSARY

Full Conference Call Transcript

Operator: Good day, and thank you for standing by. Welcome to the First Quarter 27 Casey's General Stores Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during this session, you will need to press *1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press *1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Samuel James, Senior Vice President, Finance and Investor Relations. Sir, please go ahead.

Samuel James: Good morning, and thank you for joining us to discuss results of our first quarter ended 07/31/2026. My name is Samuel James, Senior Vice President, Finance and Investor Relations. With me today are Darren Rebelez, chairman, president, and chief executive officer and Steve Bramlage, Chief Financial Officer. Before we begin, I will remind you that certain statements made by us during this investor call may constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 2000.

These forward looking statements include any statements relating to the potential impact of the Fikes transaction, expectations of future periods, possible or assumed future results of operations, financial conditions, liquidity, and related sources or needs, the company's supply chain, business and integration strategies, plans and synergies, growth opportunities, and performance at our stores. There are a number of known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially from any uncertainties or any future results expressed or implied by those forward looking statements.

Including, but not limited to, the integration of the recent Fikes acquisition, our ability to execute our strategic plans, or realize the synergies from the strategic plan, the impact and duration of conflicts in oil producing regions, and related governmental action as well as other risks uncertainties, and factors which are described on our most recent annual report on Form 10-K, our quarterly reports on Form 10-Q, as we file with the SEC and available on our website. Any forward looking statements made during this call reflect our current views as of today with respect to future events, and Casey's disclaims any intention or obligation to update or revise forward looking statements.

Whether as a result of new information, future events, or otherwise. A reconciliation of non GAAP to GAAP financial measures referenced in this call as well as a detailed breakdown of our operating expense increase for the first quarter can be found on our website at www.caseys.com under the Investor Relations link. With that said, I would like to turn the call over to Darren to discuss our first quarter results. Darren?

Darren Rebelez: Thanks, Samuel, and good morning, everyone. Before we go into further detail on our outstanding first quarter performance, I would like to thank the entire Casey's team for their hard work during our 1 100 days of summer, and for the excellent job they did serving our guests. I am also proud of the positive impact we are making on the communities we serve. As students head back to school, our annual Cash for Classrooms giving campaign raised funds for grants that will support schools, students, and teachers. This year, the help of our guests, team members, and supplier partner Coca Cola, we raised over $1.8 million.

This sets a new record and reflects our shared commitment to invest in the future of the communities we call home. We are through the first quarter of our fiscal 27 to 29 3-year strategic plan that we laid out in June. Where we highlighted Casey's advantage convenience QSR flywheel with our 3 lines of business, under 1 operating cost structure. Our strong first quarter result is yet another proof point that our advantaged model is working, as we continue to gain share both inside and outside the store. Now let's discuss the results from the quarter. Diluted EPS finished at $7.37 per share up 28% from the prior year.

Net income was $274 million, an increase of 27% from the prior The company generated $485 million in EBITDA, 17% higher than the prior year, and up 40% on a 2-year stack basis. Inside the store, prepared food and dispensed beverages remain strong. PFMDB transactions were up over 100 basis points driving and DB units up nearly 4% versus the same period in the prior year as guests continue to gravitate toward our abundant offering, compelling value, and continued innovation such as our bacon cheeseburger pizza LTO. Inside margin expansion was driven primarily by prepared food and dispensed beverage mix. In the forecourt, the capabilities we developed over the past couple years help us navigate a volatile environment.

Fuel margin was nearly $0.48 per gallon, while same store gallons were roughly flat. 1 note on the quarter. As part of our integration of the Fikes acquisition, approximately 1% of our total store base had a planned disruption associated with remodeling legacy Cefco stores to Casey's. As a result, same store sales both inside and outside the store faced a slight headwind. Despite this, we still posted strong same store results for the quarter, and remained ahead of schedule on our integration efforts. The stores that have been already remodeled to Casey's in prior periods have performed exceptionally well, and we expect to remodel Cefco stores throughout the fiscal year.

Now with that disclaimer out of the way, I would like to now go over our results and share some of the details in each of the categories. Inside same store sales were up 3.2% for the quarter, or 7.7% on a 2-year stack basis. Gross profit margin for the quarter was 42.2% up 30 basis points from the prior year. Prepared food and dispensed beverage led the way, as same store sales were up 4.8% or 10.7% on a 2-year stack basis with a gross profit margin of 59.3%. The majority of same store sales growth was from traffic with minimal price.

This was highlighted by great performance in whole pies, with units up nearly double digits in the quarter. Same store grocery and general merchandise sales were up 2.7% or 6.5% on a 2-year stack basis with a gross profit margin of 35.6%. Energy drinks and nicotine alternatives continue to outperform the category. With double digit growth. The alcohol category, specifically beer, was a headwind during the quarter. On the fuel side, same store gallons sold were down slightly at 0.3% but were positive 1.4% on a 2-year stack basis with a fuel margin of 47.8¢ per gallon. The Mid Continent region saw an approximate 6% decline this quarter according to OPIS fuel gallons sold data.

Indicating that our play is working, and we continue to gain market share and drive guest traffic. In the quarter, same store operating expense excluding credit card fees increased 5%. Steve will provide some of the specific puts and takes related to operating expense changes. But I am extremely proud of our operations team to be able to meet the increased food demand without meaningfully increasing store labor hours. The same store labor hours were roughly flat for the quarter. I would now like to turn the call over to Steve to discuss the financial results from the first quarter. Steve?

Stephen Bramlage Jr.: Thank you, Darren, and good morning. Before I begin, I also want to share my appreciation for our team members' hard work executing a plan during our busy summer months. It takes the entire organization's buy in to be able to generate such strong results which are not easy to achieve. Our total revenue for the quarter was $5.68 billion that is an increase of $1.11 billion or 24.3% from the prior year due primarily to higher inside sales, and a higher retail price of fuel. Higher fuel gallons sold also contributed. Results were favorably impacted by operating approximately 2% more stores on a year over year basis.

Total inside sales for the quarter were $1.78 billion that is an increase of 94 million or 5.6% from the prior year. For the quarter, prepared food and dispensed beverage sales rose by $34 million to $493 million an increase of 7.4% and grocery and general merchandise sales increased by $60 million to $1.28 billion an increase of 4.9%. Inside same store sales have an approximate 25 basis point headwind from the Fikes construction. Retail fuel sales were up $991 million in the quarter, as the average retail price of fuel rose 33% from $3.00 to $3.99 per gallon and total gallons sold increased by 2.5%. Same store gallons had an approximately 50 basis point headwind from the Fikes construction.

We define gross profit as revenue less cost of goods sold, but excluding depreciation and amortization. Casey's had total gross profit of $1.24 billion in the quarter, an increase of $127 million or 11.4% from the prior year and up 29.7% on a 2-year stack basis. This is driven by the higher inside gross profit of $44.3 million or 6.3% as well as higher fuel gross profit of $73.4 million or 19.6%. Inside gross profit margin was 42.2% and that is up 30 basis points from a year ago. The increase is primarily due to mix shift and solid cost of goods management.

Also, during the first quarter, we made a modest change in accounting for inside cost of goods sold related to internal distribution costs that had no net impact on inside margin in the aggregate but it did create a slight tailwind to the PFMDB margin. And a slight headwind to the grocery and GM margin. We believe this change better reflects the true cost of goods sold between the 2 categories. Prepared food and dispensed beverage gross profit margin was 59.3% that is up 130 basis points from prior year.

Cheese was $1.93 per pound for the quarter, compared to $2.11 per pound last year. it is a decrease of 9% or an approximate 45 basis point benefit to the margin. Along with the aforementioned distribution cost reclass, these 2 items accounted for all of the margin change in the quarter. The grocery and general merchandise gross profit margin was 35.6%, a decrease of 30 basis points from the prior year, and that change is completely attributable to the distribution cost reclass. Fuel margin for the quarter was $0.478 per gallon, up $0.068 per gallon from the prior year.

And sequentially, about $0.01 stronger than the fourth quarter of fiscal 26, which reflected the beginning of the Middle East conflict and the related volatility in global petroleum markets. Total operating expenses were up 8% or $55.9 million in the quarter. Approximately 2% of the total operating expense increase was due to unit growth. As we operated 64 more stores than the prior year. Same store credit card fees added approximately 1.5% to the increase. Primarily due to the previously mentioned higher retail prices per gallon. Same store employee expenses accounted for approximately 1% of the increase due primarily to increases in labor rates as same store labor hours were roughly flat.

Insurance, primarily same store healthcare insurance, was responsible for approximately 1% of the increase. In addition, same store repairs and maintenance and same store utilities collectively made up approximately 1% of the increase. Net interest expense was $22.1 million in the quarter. that is down $4.8 million versus the prior year, was primarily due to deleveraging, Associated with the Fikes transaction. Depreciation in the quarter was $116 million, that is up $7 million versus the prior year. Primarily due to operating more stores. The effective tax rate for the quarter was 21.1% compared to the prior year of 22.7%. That decrease was driven by an increase in tax benefits that were recognized on share based awards.

Our financial flexibility remains excellent. On July 31, we had total available liquidity of $1.4 billion Also, our credit facility debt to EBITDA ratio was 1.5 times. For the quarter, net cash generated by operating activities of $384 million plus purchases of property and equipment of $194 million resulted in the company generating $190 million in free cash flow. Compared to generating $262 million in the prior year. The decrease in free cash flow is due in large part to the planned increase in capital expenditures from the Cefco store remodels. At the September meeting, the Board of Directors voted to maintain the quarterly dividend at $0.65 per share. During the first quarter, we repurchased approximately $46 million in shares.

While we are off to a great start to the year, consistent with our past practice, we plan to update annual guidance on our second quarter earnings call when we are through the seasonally largest time of the year. Our results for August were as follows: same store volumes, both inside and outside the store were consistent with our first quarter results and within our annual guidance range Fuel CPG is in the low $0.40 per gallon. Current cheese costs are slightly favorable versus the prior year. We expect the second quarter operating expense increase to be similar to the first quarter and that is partially driven by the increase in retail fuel prices.

As compared to the second quarter of fiscal 26. I will now turn the call back over to Darren.

Darren Rebelez: Thanks, Steve. As we just wrapped up our first quarter into the new plan, I am as excited as ever about our progress. Our food team is doing a tremendous job. Whole pies have continued their strong momentum in the quarter. Guests are flocking to the Casey's Rewards platform, as we are now over 11 million members. We believe our abundant and value oriented food offering is not only a differentiator driving inside traffic, but it is also driving traffic to the pump. This coupled with our fuel team doing an excellent job balancing fuel margin and gallons during an uncertain environment, has yielded great results. This is our 3-legged business model in action.

During fiscal year 26, we remodeled approximately 50 Cefco stores to Casey's. In the first quarter of fiscal year 27, we have remodeled 24 more stores, We are extremely excited about the results we are seeing, as the average PFMDB lift at the stores that were remodeled to 30% versus its results of the same period prior to remodel. While we are busy with Cefco conversions, does not stop us from continuing to grow the store base, as we are on track to meet our 120 store unit goal for the fiscal year. Operational efficiency is another key pillar of the strategic plan.

As we discussed at our Investor Day, we expanded our continuous improvement efforts to include both store and the enterprise as a whole. We are off to a great start. As the team has completed a number of initiatives with many more on track for completion during the fiscal year both at the store and throughout the organization. Overall, I am very proud of the team's execution of the plan, We look forward to building on the momentum we have going throughout the fiscal year and beyond. We will now take your questions.

Operator: Thank you. As a reminder to ask a question, please press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again. We ask that you please limit yourself to 1 question only. First question comes from the line of Edward Kelly with Wells Fargo. Your line is open. Please go ahead.

Edward Kelly: Yes. Hi. Good morning, everyone. Wanted to start this on fuel margins. I was hoping that you can maybe talk about the trend in fuel margin during Q1. I think you said you had a very strong start last quarter, which I think a lot of us kind of assume that maybe that was in the 50s. Just curious what the rest of the quarter looked like. And then the underlying dynamics that drove that really robust Q4 performance and strong start, Just curious as to the sustainability of those dynamics through the quarter.

And then just lastly, related to all this, as you think about your mid-40s sort of margin guide, is there anything you are seeing out there currently that sort of raises question about that at all? Maybe talk about breakevens as part of that. Thank you.

Stephen Bramlage Jr.: Hi. Good morning, Edward. This is Steve. I will address the first 1 on fuel margin during the course of the quarter. We certainly we did enter the beginning of this fiscal year in a good position, certainly given the experience that we had in the fourth quarter. But I would say honestly that the quarter was volatile is the word I would describe with fuel margins. There were days when it was in the 60s, There were days when it was in the 30s. Most days, it was in the 40s.

And, you know, to some extent, depending on the headlines, that you read about, in the paper and social media, the there would be a corresponding move in fuel margin over the next day or 2. So I do not think it is possible to really describe a solid trend during the course of the quarter. The floor for sure was higher which is what we saw in the fourth quarter of last year because of the conflict. That was unchanged. But it really moved around quite a bit based on headlines as we went through the quarter. Thank you.

Operator: And 1 moment for our next question. Our next question comes from the line of Mike Montani with Evercore ISI. Your line is open. Please go ahead.

Greg Millik: Hi, guys. I would love to follow-up on sort of the trends you saw through the quarter. Particularly with how much of the comp decel in grocery and food might have been people getting squeezed in terms of cash they had, filling up the gas tank at the same time. Anything about that and the trends from since the quarter as well? Thanks.

Darren Rebelez: Yeah, Greg. This is Darren. I will go ahead and take that 1. Yeah. I would say that, the trends that we saw in first quarter were similar to what we have seen over the last several quarters. A couple of points. 1 is that the lower income consumers are being slightly more impacted than the other income cohorts. If you look at our business, all 3 income cohorts that we measure had positive growth in the quarter. So I will caveat it with that. But I would say that more of the impact we saw on the grocery and general merchandise side is really driven by category trends versus you know, demographic trends.

And what I mean by that is if you look at the 3 areas where we had some softness is beer, snacks, and cigarettes. And those categories have all been challenged for different reasons. that is an industry wide phenomenon. We are we are not immune to that. Know, on the beer side, we were able to make up for a good part of that with our liquor business. Ready-to-drink cocktails, in particular, were up over 30% in the quarter. So we saw some good strength there, not enough to overcome. The drag on beer. Snacks, I think we talked about this before.

We have seen a lot of pricing price action taken from the national brands, which has put some pressure on there, and 6 has been a multi decade trend. On the other side, on grocery, and general merchandise, real strength in nicotine alternatives, up 47% in the quarter. Energy continues to perform well at 12%. And nonalcoholic beverages overall were a strong contributor. So overall, I would say the trends are what they are. And then lastly, when I look at a 2-year stack basis, grocery and general merchandise up 6.5%. In an environment like this, I think, is pretty solid performance. Thank you.

Operator: And 1 moment for our next question. Our next question will come from the line of Thomas Palmer with JPMorgan. Your line is open. Please go ahead.

Thomas Palmer: Good morning and thanks for the question. I wanted to maybe just follow-up on the Cefco commentary in terms of the remodels. You noted 25 basis point inside same store sales headwind and 50 on the fuel side fuel gallons. How did this compare to kind of what you had seen on past remodels? And as we look out here over the next couple of quarters, should we be thinking about a similar kind of headwind, or does, like, the lift from the remodeled stores start to more than offset let's say, any headwind from the disruption during the remodels?

Darren Rebelez: Yeah. This is Darren. Yeah, on the remodels, this is-- you know, this is to be expected when we do heavy lifting. Where why you did not see this in the first quarter or fourth quarter of last year was there is a cohort of stores that already had kitchens in them that we were able to convert in just a matter of days. So there is really very minimal impact to the performance of the business while those were being remodeled. These next tranche of stores that we started this quarter, this past quarter, are impacted anywhere from 4 to 6 weeks. And so that puts up a pretty significant drag.

Not closed the entire time, but they are closed for a good part of it. And then partially under construction for part of it. So there is a lot of disruption that puts a drag. It is not anything different than what we would normally see in a remodel of other acquisitions. Probably the biggest difference is the Sefco stores tend to be higher-volume stores versus others that we have acquired in the past. And so it has more of a disproportionate impact and there is just more of them that we are remodeling. So that is all that said, we have been very happy with the results. Coming out of the remodels.

And so at some point, to your point, Tom, these numbers will inflect, but that is probably later in the fiscal year. And so I would not expect to see that in second quarter. Probably not anything meaningfully in third quarter. It would probably be more fourth quarter. Where you start to see that inflection point.

Stephen Bramlage Jr.: Yeah. And I would probably just add to that. All of this was countenanced in our annual guidance. We knew all this was gonna happen, and so none of this is a surprise. And I think it is exactly kind of the impact and the timing that we would have expected. Thank you.

Operator: And 1 moment for our next question. Our next question will be from the line of Bonnie Herzog with Goldman Sachs. Your line is open. Please go ahead.

Bonnie Herzog: Had a question on OpEx, which has remained elevated over the last several years. So could you provide a little more color on the FQ1 drivers? And how you expect the cadence for OpEx to trend from here? And then curious if you could touch on how much of the increase in the quarter was tied to the new stores or CEFCO, maybe labor, credit card fees or other inflationary pressures? Just really just trying to think about how we should think about normalized OpEx growth from here over the long term. Thank you.

Stephen Bramlage Jr.: Sure. Hi, Bonnie. Hey. Good morning. This is Steve. In terms of the waterfall, that I think will end up on the web page, as we have done in the past. But to get to the total OpEx, change of the 8% in the quarter, About 1 point of that was same store employee expense. So think of kind of 3% wage rate offset by flat hours, gets you to kind of 1.5 points. About 2% would have been what we would kind of broadly bucket as same-store operations. So that would be repairs and maintenance utilities. Insurance. We are self insured for our health care. That would go into that 2% bucket.

New units, to your point, is about 2% all by itself. Just the wrap of new units. Credit card fees, same store credit card fees would be another point and a half, almost 2 points, and then you get kind of everything else in the 1% bucket, which would be technology and supplies and some miscellaneous things. We continue to believe the best way to think about OpEx on a long term basis is consistent with the algorithm, right? We will grow-- we firmly believe we can grow operating expense at a slower rate. And we are going to grow EBITDA over medium and long term, I think that is imminently achievable for us.

And for this year, I would just probably point you back to we obviously have not updated the guide for the year. But the squeeze math for the rest of the rest of the year, if you go back to what we experienced in the fourth quarter of last year, you will get less OpEx growth on a year over year basis this year. To land the plane within that range. And especially if you take the fact second quarter is gonna look similar to first because of the credit card fee dynamic. You should be able to land second half of the year pretty close. Thank you.

Operator: And 1 moment for our question. Our next question will come from the line of Mark Carden with UBS. Your line is open. Please go ahead.

Mark Carden: Hi. This is Matthew Carden on for Mark. Thank you for taking our question. I was wondering if you could touch on the competitive landscape and promotional landscape a little bit Are you seeing any impact from price investments from some of the mass merchants on your inside sales or grocery and gen merch? And any shift from kinda your con convenience store peers and competition and pricing?

Darren Rebelez: Hey, Matthew, This is Darren. Really, we have not seen any unusual or different activity from the c-store competitive set. I think that is a reflection of the more challenged environment that they find themselves in relative to us with a big prepared foods business. But, yeah, we really have not seen much of that there. On the on the pizza side of the business, it is been a mixed bag. I think there is there is been some more promotional activity, but you know, again, I would remind you of how we approach the business. You know, we have our own degree of promotional activity, but our starting point is far lower in price versus the national brands.

We are we are close to on average, about $3 for a single topping pizza below what a national brand would be priced at, just line pricing. And then you know, also as a reminder, about half of our stores do not even have a national brand pizza competitor. So we are really in a in a very good competitive spot. What we did see over the quarter was that you know, similar to the dynamic that we described in Investor Day where we have taken minimal price while the pizza QSR cent has taken more price. Saw that dynamic in first quarter continue.

And that gap that we had from our pricing in prepared foods to theirs actually widened even further. So we think we saw that in the numbers with the unit growth. And the dollar growth as well in PF and DB. Thank you.

Operator: And 1 moment for our next question. Our next question comes from the line of Chuck Cerankosky with Northcoast Research. Your line is open. Please go ahead.

Chuck Cerankosky: Good morning, everyone. Great quarter. I would like to return to the nicotine category. it is it is shrinking on the cigarette side. Can you talk a little bit about the I kinda cannot even think of the name right now. the artificial cigarettes? And then what it means for the inside merchandising is you change space allocation or need to use other products to get that traffic back.

Darren Rebelez: Yeah. Chuck, this is Darren, and they are called nicotine alternatives. And so yeah, that you know, what we have seen over the course of the last couple years is as that secular decline in combustible cigarettes continues, nicotine alternatives is starting to, replace that lost volume. Now it is not a 1-for-1 yet, has not quite grown that fast. But if you think about how the categories are trending, you know, with cigarettes down 1% or 2% on sales basis and down you know, call it, 5% or 6% on a unit basis, and nicotine alternatives up 47% in the quarter. You can see where that change is going to come here soon.

From a space allocation standpoint, I think that is where our merchandising team has done a really good job is getting ahead of this and we talked about this on previous calls. We reset those nicotine backbars to reduce the combustible cigarette space to make more room for nicotine alternatives. And that move a couple years ago was I think we were 1 of the first in the industry to do that. And it is really accrued to our benefit. And I think that is 1 of the reasons that you see the strength in that category. Today in our stores. And we just did another adjustment this past fiscal year to give even more space in the nicotine alternative.

So the category overall is definitely shifting in favor of those alternatives. And, we expect to be a leader in that. In that space. Thank you.

Operator: And 1 moment for our next question. Our next question comes from the line of Pooran Sharma with Stephens. Your line is open. Please go ahead.

Pooran Sharma: Good morning, and thanks for the question here. Just a quick 1 from me. I think you mentioned your cheese cost at about dollar 93 per pound. I was just wondering if you could give us how much of your cover as you are looking out here. How much you are covered and how many quarters you are covered out.

Stephen Bramlage Jr.: Yeah, Pooran. Hey. Good morning. This is Steve. I will address that. We are about 80% covered through early into the first quarter of next fiscal year. And generally, certainly for the remainder of this fiscal year, the 3 out quarters, we would be covered in a modest tailwind to margin each of each of those 3 quarters. Thank you.

Operator: And 1 moment for our next question. Our next question will be from the line of Corey Tarlowe with Jefferies. Your line is open. Please go ahead.

Corey Tarlowe: Great. Thanks, and good morning. Hey. Good morning. Have a Thanks. I have a 2-parter. So the first, I would love an update on chicken wings. And then second is on M&A. I think you have placed recently a little bit more emphasis on Texas. Could you maybe talk a little bit about the strategy within that market, please? You very much.

Darren Rebelez: Hey, Corey, This is Darren. With respect to Wings, wings are performing well. We have been really happy with the results so far. We are still in 850 stores. And we will start rolling out the next tranche of stores here, later this month. We did not do any rollouts over the 100 days of summer just to give our stores a chance during their biggest peak period to execute at a high level. So We will start those now, and we will start getting those open probably in early third quarter. Wing's like I said, have performed well. 1 of the encouraging things is about 38% of guests that have purchased wings have had a wings only order.

And if you recall, when we talked about this strategically, we were looking to achieve another night of the week or another occasion in addition to pizza, And so those wing only orders really represent that incremental occasion. And so the folks that have had a wing only order have increased their frequency of prepared food purchases overall by about 30%. So it is a really good fact pattern for us. We are still early stages and still growing You know, as an example, the Des Moines DMA, which we have had the wings in the longest, we were up 46% in the quarter over prior year. So there is still a long runway for growth there.

And, very bullish on that category. Thank you.

Operator: And 1 moment for our next question. And our next question will come from the line of Kelly Bania with BMO Capital Markets. Your line is open. Please go ahead.

Kelly Bania: Hi. Good morning. Thanks for taking our question. Steve and Darren, I wanted to just go back to the beer, snacks and cigarette commentary and the impact on the grocery comps. Just curious a little bit more color there when that kind of weaker trend started, and are you seeing just more of a unit slowdown, or is there a trade down to lower price points or smaller pack sizes? And do you or some of the vendors have some plans to promote these categories? Through the rest of the year.

Darren Rebelez: Yeah, Kelly. I will I will go ahead and take that. And you got something different going on in each of those. I would say just start with cigarettes because that is the easiest. that is been for 30, 40 years, that trend. So nothing new to report in cigarettes, other than it is just continuing to be under pressure. And like I said, I feel better about that category the total nicotine category, now than I have in a long time. Because the nickel alternatives and the growth rate we are seeing there and the margin profile. You know, as a reminder, the margin in nicotine is double what it is in combustible cigarettes.

So that ends up that math ends up working out pretty favorably on a gross profit dollar standpoint over the long term. Snacks is something that we have probably experienced for the last couple years where the national brand manufacturers have just taken a lot of price primarily in chips. And so you see a lot of pressure in that category. And while there is been some price action that they are taking on take home packages not taking that on immediate consumption packages, which is the bulk of what we sell. So there is just they just price themselves out of the market, frankly.

Now what we are doing about that is we have leaned heavier into our private label offering. And so we are seeing really good growth in those same categories in, in our private label products. So we think we are we are not losing traffic necessarily, but the retails are lower. And so does not have quite the impact on the sales line as it might otherwise have. And beer, beer has been a category that is really struggled for the last couple years. I think it started off with Budweiser and their social media snafu, and then it is just kind of hung in there like that.

The 1 bright spot is super premium beer with Nick Ultra, but outside of that, it is been soft. What we have really done is we have made sure that we are we are priced appropriately. We are looking at space allocation in the category to make sure we are appropriately spaced. And then leaning a little bit heavier on the liquor category. And like I have mentioned, earlier on the call, ready to drink cocktails up 30 plus percent. So that is been a good offset, and that is a little bit more on trend with, where the consumers are going. Thank you.

Operator: And 1 moment for our next question. Next question will be from the line of Bradley Thomas with KeyBanc Capital Markets. Your line is open. Please go ahead.

Brad Thomas: Good morning. Thanks for taking the question. I wanted to ask about the same store gallons. Know it is tracking within your annual guidance. This was the first quarter of being negative after about 6 quarters of being positive. Just curious what you were seeing in the quarter much of the decline is the being a tougher comparison that you are up against? And then to what extent is fewer gas sales trickling through to the inside comp? Not sure if you have been able to look at that yet. Thanks.

Darren Rebelez: Yes, Bradley. I will go ahead and take that. Just on the same store gallons, on the trend, a few things I would point out. You know, 1 is down 30 basis points. So you know, our annual guide was down a percent to plus a percent. So we are we are talking about pretty nuanced numbers there. Point number 1. Point number 2, as Steve described, with the CEFCO remodels, that is about a 50 basis point drag on overall gallons. So you know, so if you net that out, you are probably up 20 basis points. So that again, nuance, but probably right in the middle of the annual guide range.

Now on a 2-year stack basis, you know, we were cycling a 1.7% same store gallon number and to put that in perspective. so we are on a 2 year stack, we are up 1.4%. The OPUS Mid Continent region, which is where we operate primarily, over that same 2 year period is down 10%. So we have taken significant share in fuel, and, you know, 20 basis points here, 30 basis points there does not concern me when the overall trend is where it is.

And you know, from a I would just add with a consumer behavior standpoint on fuel, with the higher fuel prices, we are seeing exactly the type of behavior that we would expect to see. Fewer gallons per trip but more trips made. Which ultimately accrues to our benefit if we have more people coming to the store. People are trading out of premium and mid grade and opting for regular or higher ethanol blends of fuel, The higher ethanol blends of fuel carry a higher margin for us than clear gasoline. So while these trends kinda ebb and flow, it is very consistent with prior periods of higher gas prices. And ultimately, you know, works out to our benefit.

Thank you.

Operator: And 1 moment for our next question. Our next question will come from the line of Krisztina Katai with Deutsche Bank. Your line is open. Please go ahead.

Krisztina Katai: Hi, good morning, and thanks for taking the question. I had a follow-up to grocery. So, Darren, you have highlighted strong growth in energy, nonalcoholic beverages, and nicotine alternatives, but, obviously, snacks remain challenged. So do you think the weakness in snacks is entirely a function of pricing and value perception? And are you starting to see evidence maybe of a more durable shift in consumer behavior? Obviously, there is a shift towards healthier consumption patterns or also any GLP-1 usage that you might be seeing, and if that is warranting any kind of a revision of how you are thinking about maybe what the inside of the box needs to look like, maybe 2 to 3 years from now.

Thank you.

Darren Rebelez: Yeah. Thanks, Krisztina. And you know, certainly, we keep an eye on that. But, you know, when I look at what is happening in the category and as I mentioned before on snacks in particular, national brand chips down around 8%. Corey's chips up 16% units. So if it was a GLP-1 impact, I do not think we would see the strength in our own private brand. We just we would see overall you know, negative trend in the category. So I cannot put my finger on the idea that it is a GLP-1 type issue. That being said, there is certainly a trend of people leaning more towards protein-heavy snacks and foods in general, and we are seeing that.

And our merchandising team's done a nice job of bringing in more protein dense snacks and other foods. Satisfy that need. And we are seeing good growth in those. Just smaller categories. So they really do not move the needle as much on the overall G and GM category, but they are growing well. And, we are staying attuned to that trend. We are just I just do not see enough of it yet to make any more dramatic shifts at this point. Thank you.

Operator: And 1 moment for our next question. Our next question will be from the line Bobby Griffin with Raymond James. Your line is open. Please go ahead.

Bobby Griffin: Dan, I wanted to touch on just the Texas opportunity further, and I think you called out on the remodel stores for Fikes. They are performing well. But can you dive into a little bit more about what those stores are kinda showing versus maybe corporate average once they get your Casey's Pizza in there. I think Fikes were higher performing stores. So is that translating into a higher, you know, just a larger pizza business? And is that indicative of what maybe the opportunity could be as you open up new-to-industry or, you know, you do tuck ins. You guys completed a small tuck in Texas, you know, after the quarter end. Yeah, Bobby.

Darren Rebelez: You know, the like we said, the performance of the CEFCO stores has been fantastic. So far coming out of the remodels. And you know, what I would say is most encouraging is that these stores were high volume. They were generally higher volume than our average. Now, not in prepared foods, but their prepared foods business was probably the best that we have ever acquired. I do not think there is been anything that is even close to how CEFCO is performing in Prepared Foods prior to acquisition. And so you know, when we can come in and take a store already doing well in prepared foods and layer our program on top of it.

And see, you know, the types of lifts that we are seeing, 30 plus percent year over year. it is really encouraging. And even in the proof of concept stores that had the full Casey's assortment for over a year, they are still comping positively. And so we feel really good about what we see. We have also had some new to industry stores that we built down in Texas. Over the last year since we have been down there, and, those are performing very well. So we really like we really like Texas overall. We as you know, this has been a goal of ours to get into that state for a while now.

The 2 acquisitions we have done and now a third coming have been very good to us, and the new industries are doing well also. And as I have looked at Texas, you know, outside of the big 4 cities of Dallas, Austin, San Antonio, Houston, The rest of that entire state is Casey's Country, and from our perspective, it is got a long, long runway for growth. Thank you.

Operator: 1 moment for our next question. Our next question will be from the line of Daniel Guglielmo with Capital 1 Securities. Your line is open. Please go ahead.

Analyst: Hi, everyone. Thank you for taking my question. Kind of a follow-up on kind of state strength. You all have stores in 19 different states. If you think about customers at the state level, are there certain states or areas of the country where you are seeing a stronger consumer or weaker ones?

Darren Rebelez: Daniel, I would have to look. I probably have to look a little closer to try to answer that question. Nothing jumps out at me. Probably 1 example that we have seen is between Illinois and Indiana. On the border where Indiana has suspended gas tax in that state. And Illinois has not done anything similar. And so we are seeing a little bit of weakness along the border in Illinois. From a fuel perspective, but we are also seeing a corresponding strength on our on the other side of the border in our Indiana stores. I would say it is kind of a wash.

Just guests kinda playing an arbitrage game, but outside of that, I could not specifically point to any 1 state doing better or worse than the others.

Analyst: They are I mean, they always perform a little bit differently, but nothing that really jumps out. That concerns me.

Stephen Bramlage Jr.: I think it is worth reinforcing that if you just think about part of the strategic notes that Casey's has and that we tried to highlight at the Investor Day, right, the geographic footprint we have remains in some of the lowest cost of living parts of the country. And so you know, broadly speaking, the money that our consumers earn goes further than it would certainly for consumers who are similarly situated on the coasts. And we feel like that just accrues to our benefit for sure. And I think that is a very fair statement for the vast majority of the communities. That we serve and continue to serve.

Operator: Thank you. Our next question comes from the line of Jacob Aiken-Phillips with Melius Research. Your line is open. Please go ahead.

Jacob Aiken-Phillips: Good morning. Thanks so much for taking our question. This is Jacob Aiken-Phillips on for Jacob. Just wondering if you could zoom out a little and touch on M&A as a whole. Have you seen the industry change at all in the last several quarters? And then also, just wondering if you could remind us on philosophically just how you see M&A contributing to your 120 new unit growth target by the end of the fiscal year? Thank you.

Darren Rebelez: Yeah, Jacob. I would say the M&A environment is, is still really good. And that is a reflection of the challenging environment that, that the industry finds itself in particularly the small operators. And so it would not say it is changed. I would say it is still consistent, maybe even gotten a little better from a buyer's perspective. And you know, multiples have stayed relatively flat but the EBITDA that is multiplied by has not. And the EBITDA even with the higher fuel margins, tends to go backwards for these smaller operators. So we find ourselves paying a lower absolute price for some of these assets even though the multiples are about the same.

And you know, consistent with our guidance you know, every year we go into that you know, giving a number of stores we will add in the fiscal year. This year, it is a 120. We go into that assuming half of that will come from new industry builds, half of that will come from the small deal M&A and that is exactly how we see it playing out this year, give or take a couple. Thank you.

Operator: And I would now like to hand the conference back over to Darren Rubelis for closing remarks.

Darren Rebelez: All right. Thank you for taking time today to draw us on the call. Before we go, I want to thank our team members once again for all their hard work this quarter. Have a great day.

Operator: Thank you. This concludes today's conference call Thank you for participating, and you may now disconnect. Everyone, have a great day.

Should you buy stock in Casey's General Stores right now?

Before you buy stock in Casey's General Stores, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Casey's General Stores wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $414,015!\* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,385,459!*

Now, it’s worth noting Stock Advisor’s total average return is 960% — a market-crushing outperformance compared to 213% for the S&P 500. Don't miss the latest top 10 list, available with Stock Advisor , and join an investing community built by individual investors for individual investors.

See the 10 stocks »

*Stock Advisor returns as of September 9, 2026.

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has positions in and recommends Casey's General Stores. The Motley Fool has a disclosure policy .

Show comments

0

Howard Smith, The Motley Fool

Fri, September 11, 2026 at 9:09 AM EDT

0

Image source: Getty Images.

Key Points

Casey's General Stores(NASDAQ: CASY) reported a sharp jump in earnings this week, but investors weren't impressed. Shares have plunged 16% since last Friday, according to data provided by S&P Global Market Intelligence.

Casey's CEO, Darren Rebelez, called it an "outstanding first quarter performance," but investors are skeptical that the strong results will be ongoing. Here's why.

Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »

Two factors have investors concerned as they look ahead. First, the company known for its made-from-scratch pizza saw a significant lift in fuel margins due to volatile global energy markets. That will likely revert in the coming quarters. Second, while same-store sales excluding fuel rose 3.2% year over year, this represented a slowdown in growth compared with the over-4 % increase last year.

The company itself seemed to support investor concerns by reiterating its full-fiscal-year outlook. With this first fiscal 2027 quarter starting stronger than expected, management also appears to expect underwhelming results over the next several quarters.

That might just be a conservative outlook, though, due to global oil price uncertainty and other macroeconomic factors. Investors with a longer-term outlook should be optimistic about Casey's. After a late 2024 acquisition of Cefco convenience stores from Fikes, Casey's is seeing robust sales improvements on those remodeled stores. A 30% jump in food and beverage sales shows the integration will be a boost for Casey's going forward.

Investors looking to add a growing consumer discretionary name to a portfolio may want to take advantage of this week's big stock drop.

Should you buy stock in Casey's General Stores right now?

Before you buy stock in Casey's General Stores, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Casey's General Stores wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $409,917!\* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,341,724!*

Now, it’s worth noting Stock Advisor’s total average return is 942% — a market-crushing outperformance compared to 211% for the S&P 500. Don't miss the latest top 10 list, available with Stock Advisor , and join an investing community built by individual investors for individual investors.

See the 10 stocks »

*Stock Advisor returns as of September 11, 2026.

Howard Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Casey's General Stores. The Motley Fool has a disclosure policy .

Show comments

0

Aaron McDade

Wed, September 9, 2026 at 12:43 PM EDT

0

Even with Wednesday’s decline, Casey’s shares are still up more than 12% from the start of the year.Credit: Cheng Xin / Getty Images

Key Takeaways

Casey’s General Stores stock is tumbling after a key sales metric disappointed.

Shares of Casey’s General Stores (CASY) were down nearly 15% in recent trading, making it the worst-performing stock in the S&P 500, on a day when broader markets declined. Yesterday, the convenience store and gas station operator reported same-store sales growth of 3.2% for the fiscal first quarter, below the 3.8% analysts surveyed by Visible Alpha were looking for.

CEO Darren Rebelez said the company faced a “volatile” fuel environment in the quarter, with same-store fuel sales falling by 0.3% when analysts had been expecting a slight gain.

William Blair analysts wrote after the report that they see the stock’s slump as “overblown.” Lackluster fuel and grocery sales are “likely exacerbating concerns around the health of the consumer,” they wrote, overshadowing otherwise strong results.

Casey’s said it earned $7.37 per share on $5.68 billion in revenue for its fiscal first quarter, topping analysts’ projections of $6.81 per share and $5.56 billion.

Even with Wednesday’s decline, Casey’s shares are still up more than 12% from the start of the year.

Read the original article on Investopedia

Show comments

0

Motley Fool Transcribing, The Motley Fool

Fri, September 11, 2026 at 10:43 PM EDT

0

Image source: The Motley Fool.

DATE

Friday, September 11, 2026 at 8 a.m. ET

CALL PARTICIPANTS

TAKEAWAYS

Need a quote from a Motley Fool analyst? Email pr@fool.com

RISKS

SUMMARY

Management reported that the company managed margins effectively despite a softer top-line performance during the quarter. The company stated that cost savings generated from sourcing and procurement are being reinvested into a customer value plan designed to improve price perception over multiple years. Management noted that while consumer budgets are under pressure from high fuel costs and reduced government benefits, engagement remains high in premium private labels and health-focused categories. The Kroger Co.(NYSE:KR) reaffirmed its full-year earnings guidance while lowering its identical sales outlook to reflect persistent macroeconomic challenges and regulatory headwinds.

INDUSTRY GLOSSARY

Full Conference Call Transcript

Operator: Good morning, and welcome to the Kroger Company Second Quarter 26 Earnings Conference Call. Please press star 1 to raise your hand. To withdraw your question, press star 1 again. Please note this event is being recorded. I would now like to turn the conference call over to Robinson C. Quast, Vice President, Investor Relations. Please go ahead.

Robinson C. Quast: Good morning. Thank you for joining us for Kroger's second quarter 26 earnings call. I am joined today by Kroger's Chief Executive Officer, Gregory S. Foran and Chief Financial Officer, David John Christopher Kennerley. Before we begin, I want to remind you that today's discussions will include forward looking statements. We want to caution you that such statements are predictions, and actual events or results can differ materially. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis is contained in our SEC filings. The Kroger company assumes no obligation to update that information. After our prepared remarks, we look forward to taking your questions.

In order to cover a broad range of topics from as many of you as we can, we ask that you please limit yourself to 1 question. I will now turn the call over to Gregory.

Gregory S. Foran: Thank you, Robinson, and good morning, everyone. This quarter reinforced my view that we are pointed in the right direction. As I reflected on our performance in the quarter, I am pleased with our ecommerce and retail media results. I am pleased with the growth of our brands, especially in health and wellness and organic. I am pleased with the new talent we have recruited to build America's favorite grocer. I am pleased with the improvement in value we are delivering to customers and the cost savings which are funding this. Most importantly, I am pleased with our continued progress on share.

Turning to our results, sales were tracking well through the quarter until our final period when we absorbed the impact of the cyclospora outbreak. Which cost us roughly 35 basis points of total company IDs without fuel. Reflecting the impact of produce categories. Our identical sales without fuel grew 0.2%. This quarter, customers continue to shop in our stores and online, and we saw traffic increase during the quarter. At the same time, the macro environment is challenging. We know that fuel over $4 has an impact on consumer spend. Lower drug prices and pharmacy reduced sales by approximately 140 basis points. The top line was soft across the industry this quarter.

Despite these industry wide challenges, our teams are executing our plan. We keep the customer at the center, move with more speed, and be great item merchants. We are resolute and committed to executing our plan. We are chasing every dollar we can save, and you can see that in our profit result. Adjusted earnings per diluted share was $1.09. These results demonstrated the strength and flexibility of our operating model in a challenging sales environment and I am pleased with how our teams delivered. Our goal remains simple. We are building America's favorite grocer. Customers want value, quality, convenience, and a shopping experience they can trust. When we deliver those things consistently, we earn bigger baskets, and more trips.

A lot of the work we need to do is right in front of us. We are making progress on execution across the business, but there is still work to be done. An opportunity remains inside our stores, better in-stocks, better merchandising, better standards, and better shrink management. These are not new ideas. But customers notice when we execute well. This quarter, on shelf availability reached an all time high. and our pickup perfect orders were our best ever. We also have an opportunity to become stronger merchants. Whether it is fresh foods or prepared meals, we can do a better job helping customers answer what is for dinner and creating excitement around great products in our stores.

When we have done that, customers have responded. Natural and our prepared meals grew well ahead of total sales. At the same time, we have to be relentless on cost. Our teams are moving with more speed and urgency. And sourcing and savings came in ahead of plan this quarter. There is more work to do across sourcing, procurement, productivity, and simplification. Every dollar we take out is a dollar we can reinvest in areas customers will see. That is how this becomes sustainable for customers and for shareholders. Value continues to matter, and it matters more when budgets are tight. Our customer value plan is underway and progressing well.

We have opportunities to strengthen our value position simplify promotions, and make it easier for customers to recognize value in our stores. This is a multiyear effort. We will have more to share. At our investor update in October. E commerce is where most of the growth in our industry will come from over the next several years, and we intend to take our share of it. We have built real capability, and our stores give us a strong advantage. The customers have choices in the bar for convenience and reliability keeps. Moving higher. Our objective is to grow ecommerce faster and more profitably. And deliver an experience customers can count on every time.

And none of this works without great people. And that is why building a strong culture remains 1 of my highest priorities. Simplicity and focus matter. When the work is simpler, our associates spend more time with customers. This quarter, we welcomed Emily DeMartino, as our chief people officer. Emily brings deep experience leading people teams in large frontline organizations. And she's already shaping our focus on leadership and talent development. We are also pleased to welcome Nate Faust, as executive vice president and chief ecommerce officer. Nate has spent more than 2 decades building successful ecommerce businesses. And he brings the mix of merchandising, supply chain, and technology experience we need to accelerate our growth.

We are also pleased to welcome Mary Ibbotson, as executive vice president and chief store operations officer. Mary brings extensive retail and operational leadership experience, and she will help us raise the level of execution across the enterprise. We know what great looks like in our best divisions. The opportunity now is to deliver that level of performance more consistently across the organization. The work we have underway is beginning to take hold, and we are seeing early green shoots that the improvements we are making are resonating with customers. Let me give you some more context on the environment we are operating in. Customers remained under pressure, and that has affected them broadly.

Unit growth has slowed since the start of the year. Reductions in SNAP benefits, higher fuel prices, and softer consumer confidence are all putting pressure on household budgets. Customers are buying more on need. At the same time, we are still seeing them prioritize their health. We continue to see strong engagement in natural and organic, and we are responding by expanding the assortment across the store. During the quarter, we added more than 600 new natural and organic items, giving customers more healthy choices at great value. We are also finding new ways to make health and wellness more accessible and convenient. In August, we launched a new grocery and prescription delivery offering with Instacart.

Allowing customers to combine groceries and eligible prescriptions into a single order across nearly all our banners. it is another example of how we are using the strength of our ecosystem to reduce friction, and improve service. Cyclospora also affected results late in the quarter. While the categories impacted were limited, customers responded more broadly across our produce department. Our teams moved quickly, followed established protocols, and worked closely with suppliers and regulators. Food safety is our highest priority. And protecting consumer trust matters. We also remain disciplined taking unnecessary costs out while delivering greater value to customers. Those priorities go hand in hand and supported strong gross margin performance despite top line challenges. The formula is simple.

Savings fund value. Value earns a trip. And the trip is what grows this business. Ecommerce had a strong quarter. During the quarter, adjusted ecommerce sales grew 20% and combined with the continued strength of retail media, we delivered our second consecutive quarter of profitable ecommerce growth. Also attracting new customers, up 20% versus last year, led by strong engagement during online deal days. We have renewed our focus on in store fulfillment and fast delivery. And we are seeing encouraging growth in delivery orders in less than an hour. Demand continues to shift towards faster fulfillment and we are positioning our network to meet it.

Retail media grew 24% during the quarter, our best since 2021 with media up 88 basis points. Stronger collaboration between our merchandising and media teams, expanded advertising inventory, and optimization efforts, improved visibility, and conversion for our brand partners. Our brands remain a real point of difference With 35 plants, we control the costs and quality in a way most retailers cannot. Customers are looking for value, but they are not willing to compromise on quality. Our brands answer both, and the momentum shows it. Particularly in private selection and simple truth. Private selection sales increased more than 14% during the quarter, driven by strong customer response to new products. Including more ready to heat and ready-to-eat meals.

Products like our Mandarin Orange Chicken, an Italian inspired gnocchi alla sorrentina, are resonating with customers and reinforce the strength of our premium convenient meal offerings. Across the portfolio, our brand sales grew faster than national brands. And penetration increased approximately 50 basis points. Looking ahead, we are also expanding SmartWay. Our opening price point brand. With more items, broader coverage across the store, and improved visibility both in store and online. Earlier this quarter, we expanded our loyalty program and rebranded FuelPoints as SimplyPoints. Customers can now use points for savings at the pump. Or apply them directly to their grocery bill in store or online.

What I like about this approach is that it gives customers more flexibility to decide where the value matters most. More ways to earn, more flexibility in how customers use them, That is what a loyalty program should do. Let me also briefly touch on our planned acquisition of Giant Eagle. At its core, this is about serving more customers in more communities with the value, quality, and convenience they expect. We have a great deal of respect for the Giant Eagle team and the business they have built. Like Kroger, they have strong local relationships, trusted brands, and a long history of serving their customers.

We believe this combination creates a stronger business for customers associates, and the communities we serve. We continue to expect the transaction to close in 2027 and remain focused on working through the regulatory review process. Stepping back, we see clear opportunities to strengthen our sales momentum and we are going after them. Item by item, we controlled what we could control. We managed costs, We strengthened value for customers. We grew our ecommerce business profitably. And we delivered our profit goals in a quarter where the top line made that hard to do. I have always believed periods like this reward the operators who stay disciplined and keep doing it right by the customer.

That is where our focus is. And it is why I like our position going into the back half of the year. In October, we will hold our investor update. We will lay out the long term framework. How we grow sales in store and online, how we fund the customer experience through cost savings, and what that means for the earnings power of this company. I am looking forward to it. The work is never done, and that suits us. A little better every day. In a lot of places. At once. I will now turn the call over to David.

David John Christopher Kennerley: Thank you, Gregory, and good morning, everyone. Gregory outlined the priorities that are shaping our business and this quarter's results reflect both the progress we are making and the areas where we see opportunity. Sales were softer than we planned, and we still delivered the profit we committed to. Gross margins improved, e commerce profitability improved, We improved value for customers out of savings and we managed margins responsibly. This quarter, we achieved identical sales growth without fuel of 0.2%. Let me walk through what drove that number starting with where we grew. Natural foods, meat and seafood, and bakery all delivered strong results in the quarter.

Within pharmacy, the core business was healthy Scripts grew, and we saw continued momentum in GLP-1 medications. We continue to see impacts from the Inflation Reduction Act, which was an approximately 140 basis point headwind to identical sales without fuel and the ongoing shift from brand to generic prescriptions reduced sales by approximately 60 basis points. Outside of pharmacy, the impact from cyclospora 35-basis-point headwind to company IDs without fuel from produce alone. And the lingering effect of egg deflation was another 30 basis point headwind. Taken together, these headwinds represented a 265 basis point drag on identical sales without fuel in the quarter.

In terms of units, grocery units decelerated slightly compared to the first quarter, driven by many of the factors Gregory covered earlier. This was partially offset by overall food inflation, which was modestly higher than the first quarter. But what is important is that we continue to perform better than Circana's rest of market, a benchmark of traditional grocery competitors. Against this backdrop, we stayed focused on delivering value for customers working with suppliers to optimize cost, strengthening our value proposition versus competitors and managing margins responsibly. Our FIFO gross margin rate, excluding rent, depreciation and amortization and fuel, increased 13 basis points versus the second quarter of last year.

This improvement was primarily driven by e-commerce profitability, media, pharmacy mix, tariff refunds and sourcing initiatives. These benefits were partially offset by higher shrink, increased transportation costs and investments in customer value. We continue to expect our FIFO gross margin rate to be positive, on a full year basis as cost savings initiatives ramp throughout the balance of the year. Our operating, general and administrative rate increased 33 basis points versus the second quarter of last year driven by deliberate investments in associate wages, increased health care costs and sales deleverage. Partially offset by lower incentive plan costs and ongoing productivity initiatives. Our adjusted FIFO operating profit in the quarter was $1.1 billion.

Adjusted EPS was $1.09 representing 5% growth versus last year. Let me also address tariffs. As we have previously discussed, our exposure is more limited than many of our competitors. Reflecting the fact that the majority of what we sell is food sourced domestically. We did receive tariff refunds in the quarter, but they were not a meaningful driver of results, and they were fully reinvested back in value. While sales were soft in the quarter, earnings continued to benefit from gross profit improvement cost savings, fuel contribution and the progress we are making in e commerce and media. Cost savings remain a core pillar of our long term strategy.

They are how we fund investments in customer value, while protecting the long term earnings power of the business. In the second quarter, we again delivered savings above our plan with broad based contributions across both cost of goods sold and goods not for resale initiatives. We continue to see meaningful runway across sourcing, procurement, simplification and productivity and we expect savings to build through the balance of the year. We look forward to sharing more specific long term targets at our Investor Update in October. Turning to Fuel. Fuel remains an important contributor to our financial model. While industry fuel demand remained under pressure, our gallons increased in the quarter. Outperforming the broader market by approximately 25 basis points.

Gallon performance continues to be driven by our fuel rewards which we supported with additional promotions in the quarter. Fuel redemptions increased nearly 6% versus last year. Our gallon performance combined with higher margins per gallon in a more volatile energy market, drove modestly higher fuel profitability. In the quarter. Our associates are central to how we execute and investing in them is directly tied to the customer experience we deliver. Competitive wages and benefits remain the foundation and we are seeing positive results from those investments. Retail store retention continues to improve, exceeding our goal helping us better serve our customers. That stability matters financially. Experienced associates are more productive, and we spend less on hiring and training.

Now turning to capital allocation. We continue to allocate capital towards projects that strengthen the business over the long term. During the quarter, we completed 12-major-store projects building density in markets, expanding our ability to serve customers and supporting future growth. Kroger generated solid adjusted free cash flow this quarter, driven by our operating results. Free cash flow is important to our model, providing liquidity to our operations and allowing us to maintain a strong balance sheet. At the end of the second quarter, Kroger's net debt to adjusted EBITDA was 1.91 compared to our net total debt to adjusted EBITDA target ratio range of 2.3 to 2.5. Over time, we expect to move back toward our target leverage ratio.

We view this flexibility as a strategic asset. It gives us optionality to invest in high return opportunities while maintaining our commitment to investment grade credit. Through the first half of the year, we repurchased a approximately $1.2 billion of shares under our existing $2 billion authorization. Given our strong free cash flow generation and balance sheet flexibility, we remain well positioned to complete the remaining repurchases during the second half of the year. Our capital allocation framework is grounded in improving ROIC, and that discipline guides every investment decision we make. It is how we fuel our investment in growth and generate long term returns for shareholders. Now let me turn to our outlook.

We are lowering our full year identical sales without fuel guidance to a new range of 0.2% to 0.8% from our initial range of 1% to 2%. The update reflects our first half results together with pressures that remain in the balance of year. In the opening weeks of the third quarter, we continue to see lingering impacts from Cyclospora, Trends are improving, but we have taken a cautious view of how long the impact may last, and our outlook assumes some headwind to sales without fuel in the quarter.

We expect additional sales headwinds in the fourth quarter, the identical sales without fuel impact from the Inflation Reduction Act is projected to accelerate to approximately 150 basis points as new high cost drugs including GLP-1s, are added to the formulary in January. As is the case this year, we expect the pharmacy headwind to have no impact on profit in the fourth quarter, or in 2027. Beyond Pharmacy, we expect 2 headwinds related to prior year comparisons. We will begin to cycle the sales benefit from our new third party delivery partnerships, which began last October.

We also expect to cycle significant weather related sales benefits from last year which will weigh on identical sales excluding fuel in the fourth quarter. As a result, we anticipate ID sales without fuel Will be slightly better in Q3 than in Q4. Despite a lower sales outlook, we are maintaining our full year guidance for adjusted FIFO operating profit of $5 billion to $5.2 billion and adjusted net earnings per diluted share of $5.10 to $5.30 We have many levers in our financial model, that provide us flexibility and allow us to deliver earnings growth despite top line pressure. And we have clear visibility into the drivers of our earnings growth ahead.

Through the back half of the year, we expect consistent year over year earnings growth between the third and fourth quarters. We expect cost saving initiatives to build through the second half along with pharmacy margin contribution further improvement in e commerce profitability and continued growth in our Media business. And as I mentioned earlier, we resumed share repurchases this quarter following the announcement of our planned acquisition of Giant Eagle. We expect share repurchases to support earnings per share growth over the remainder of the year. These are drivers largely within our control. We have strong plans in place, and they are the basis for our confidence in the full year outlook.

The second quarter demonstrated what that discipline looks like in practice. We managed margins against a softer top line and delivered the profit we committed to. We expect to do the same through the balance of the year. Our priorities are unchanged invest in the business for long term growth manage margins with discipline and generate strong free cash flow that supports attractive returns for shareholders. And with that, we look forward to your questions.

Operator: We will now begin the question and answer session. Please limit yourself to 1 question. If you would like to ask a question, please press star 1 again. We ask that you pick up your handset when asking a question for optimum sound quality, and if muted locally, please remember to unmute your device. Please standby while we compile the Q and A roster. Your first question comes from the line of Michael Lasser with UBS. Your line is open. Please go ahead.

Michael Lasser: Good morning. Thank you so much for taking my question. Your clear message this morning has been that you can fund price investments almost on a 1-for-1 basis through the savings that you are gonna realize from the business. Now with that being said, how much did you invest in price in the second quarter Where does Kroger's price gaps stand today? Where do they need to be? And what is been the impact of those price investments, especially in light of what seems like a cautionary outlook for the back half of the year. Sorry. So many multilayered questions in there. Thank you so much.

Gregory S. Foran: Leah. Hi, Michael. it is Gregory. Thanks for your question, and thanks for your interest in you know, we, like you, have a lot of interest in making sure that our customer value plan plays out. there is a number of points you have raised. Just to reiterate, yeah, we can fund it, and really, this quarter is a demonstration of that even though we have seen that the consumer has been pretty disciplined in terms of how they have spent as they have dealt with gas and fuel and then, of course, cyclospora. We are happy with that funding. Being very measured about how we do this.

Measured because the value proposition actually has to get layered in with running better stores and also making sure that our ecommerce offer is hitting. Where we want. So we will share some more when we get to October in terms of how we see that playing out. We are not providing exact figures on the investment, but we have invested geographically. And I have also been very pleased with how the merchants have been managing you know, our value generally And what I have seen over this quarter is that our pricing relative to some of our competitors on what we call our white label, our basic shelf price. Has actually improved.

And then finally, the other measure that I take a lot of interest in is market share. And we spend a lot of time looking at that each week, each 4 week period. We wanna open up that gap on what we call rest of market We have done that gap We have we have done that. We have maintained that gap Through Q2. And I think that is a pretty good performance when you consider that probably our fresh mix is more heavily weighted, and we have had to deal with cyclospora particularly in light of the fact that impacted us when most of the other retailers had already completed their quarter. So I hope that answers your questions.

David, you wanna add anything?

David John Christopher Kennerley: Leah. Mike, I just think 1 thing to add. We were pleased with the FIFO gross margin performance this quarter. I think that demonstrates for us the ability to invest in value you know, offset it with savings, and that is gonna be the model going forward. You know, we are confident in the FIFO gross outlook through the balance of the year. And as we update you guys in October, that is gonna be the model. You know? Generate savings. Invest in value, expand the margins over time.

Operator: Your next question comes from the line of Robbie Ohmes with Bank of America. Your line is open. Please go ahead.

Robert Ohmes: Oh, hi. Thanks for taking my question. Gregory, I was hoping you could talk about just inflation pressures in general or lack of them What are you thinking could happen with the grocery industry? Obviously, with diesel prices going up a lot and things, what is what is the inflation outlook for you guys and your assumption for the industry for the for back half of the year And how do you see that playing out?

Gregory S. Foran: Leah. Thanks for your question, and it is something that weighs on my mind. And as I see what is happening, particularly with gas prices, diesel prices, You know, historically, when you get an environment like this, you see it start to flow through. When we are taking a very measured approach because you know, as David just shared, we have got a lot of active work underway at the moment in terms of cost savings. You know, some of that is built around what we call our COGS.

And what we wanna do is make sure that the great work that is happening in that area just is not if you like, frutted away as we then have to deal with price increases. So there is you know, some really good work that the teams are doing in this area, but I would expect that pressure is actually going to mount And we have seen a little bit more in Q2 than what we saw in Q1. But I am very pleased with the way the teams are managing cost and retail. And I would reiterate again that actually our value proposition Improved in Q2. Vis a vis our competitors.

And that is what I wanna see And on top of that, the more definitive value proposition that we are starting to roll out has also come into play. So you know, there is some good managing of margins and costs in this business And I mean what I said in the in the call that I am very pleased with how the teams have managed it. David, what do you wanna layer in terms of inflation?

David John Christopher Kennerley: Thanks, Gregory. Couple of couple of things. So Robbie, our outlook broadly remains the same. So, you know, our range is within this 1 to 2.5 range for the balance of the year. As Greg said, I do think we will see a bit more pressure in the second half than we have seen in the first half. But I expect us to be below CPI Our focus, as we said, is about working with suppliers take cost out, use that money to reinvest into value, and protect margins. And so, I expect the margin growth FIFO gross margins to remain positive. So we think we can manage it.

But we do expect a little bit more pressure in the balance of the year. Your next question comes from the line of Edward Kelly with Wells Fargo.

Operator: Your line is open. Please go ahead.

Edward Kelly: Yes. Hi. Good morning, everyone. I wanted to ask you about the pricing strategy and, you know, the shift that you are looking to take here in terms of simplifying pricing and improving the value perception at shelf. Can you just talk a little bit more about, you know, what you are looking to do there? How much of that involves, you know, less deals, better shelf price, How does it change the way that you deal with vendors around that? And then pulling something like that off know, how do you think about the way customers respond? Maybe customers that, you know, have become accustomed to you know, looking for, you know, deals on, like, multipack, for instance.

Versus you know, versus just better shelf price? Just curious as to how you are thinking about all that.

Gregory S. Foran: Leah. Thanks, Edward. it is a great question. And as you have laid out in that question, there are many layers to this. And averages actually do not get you to the right answer. You know, having been at this retail game now for a number of decades, I think I am in the fifth decade. I guess I have seen a number of these things play out. Number 1, you do not do this in 5 minutes. Or a quarter or even a year. This is a multiyear program. Number 2, there is a degree of common sense that plays out here that says, you know, a customer has got options.

They can turn left and they can go turn right. What sort of gap do you want on the basket? Between yourself and your competitors? And that takes into account many aspects, the quality of assortment, the service, the quality of the shopping environment, quality of fresh foods, We know what that gap should be. And that is what we are working towards. You do not do it all at once. Because you cannot fund it. All at once. And we have been quite deliberate about how we think about that.

We generate savings through a combination of COGS through imports, for goods not for resale, through reductions in headcount in the business because we have got more efficient at doing things. And we apply those savings to our shelf prices, and at the same time, we glide down a bit like you do when you are flying a plane, To get from 40 thousand feet to sea level, you take it down sort of 1 thousand feet at a time. You do not take too long to do it. You do not try and do it too quickly. And you come up with a promotional mix that makes sense.

And once again, through having done this for a number of years, we know what that number is. So this gets done by geography. We are well underway. We are encouraged, actually, by the results. That we are getting. And, you know, what does good look like? Good looks like you know, do we sell more units? Do we get more customers engaged in e commerce? We track what competitors do when we do this. And it is about positioning Kroger as a really good value option. Out there in the marketplace. We are not in the game of being the cheapest because we do not have the lowest costs. But we can provide the best value.

And all of these points are woven into our approach. And you know, we have made good progress, and you will continue to see us progress this approach. We are happy with it. And we will share more in October.

Operator: Your next question comes from the line of John Heinbockel with Guggenheim Securities. Your line is open. Please go ahead.

John Heinbockel: Gregory, 2 related questions building on that last answer. When you think about obviously, you have gotta move the reality of the price gaps down. But when you think about perception, the survey work you do, perception versus reality, how big do you think that gap is How do you begin to change that? Know, is that partly a marketing issue? And then I assume you do have right. You have got some businesses where food volumes are positive. And I guess, what are the commonalities there?

Gregory S. Foran: Hi, John. Good to talk to you again. 2 very good questions. Perception versus reality. I would say to you, once again, having done this before, it takes a bit of time. So initially, when you take action on your shelf prices, actually, your sales go down. For the obvious reason that the item costs less. Over time, customers begin to understand what you are doing, and they start putting items in your basket. And, yes, part of this is coming up with the right marketing package and that is something that we continue to refine and work on, and you will see some more from us in that space soon.

I would say to you that over time, my experience has been that perception does equal reality. You can fool some of the customers some of the time, but you cannot fool them all the time. I know anecdotally as I get around stores, and I have probably done just over 100 now, But I also know from the research that we have done in 84.51, some of our customers understand our promotional package but well over half do not. And so once again, we have got to balance it carefully. Because some of the ones who do understand the package are some of our best customers, and we have got to glide path this approach sensibly and carefully.

But we do understand how to do that. You know, there are some real highlights in our package in terms of what is working. I would say to you that 1 of the things that I really like is the excitement that we are starting to generate in the business around selling items. And, you know, when I get into a couple of categories, it might be deli and bakery, and I see that we are actually gaining market share in both dollars and units. I sort of know why that is working. And it is to do with some fantastic items that we have in that business.

Or the excitement that we had in the organization when we worked out how many chickens rotisserie chickens we sold last week. Between the hours of 7PM and 8PM. Actually, our sales during that particular hour were up 72% on where they were previously. So it is about having great items, it is about getting our stores engaged. Around these particular items. Built into that is what we are doing with our brands. And as we accelerate that, I would say that also puts a bit of pressure on the top line because you deflate your sales. Good for profit. So I am happy with what I am seeing, around the business.

This is not going to happen in 5 minutes. But I would say to you, give us a year, We will be a lot better than what we look today. Give us another year after that. It will even be better. I am feeling happy with the progress after just sort of being in this business 200 days. Your next question comes from the line of Kelly Bania with BMO Capital Markets.

Operator: Your line is open. Please go ahead.

Kelly Bania: Hi. Good morning, and thanks for taking our question. Gregory, just to just to kind of level set, you called out the incremental pharmacy headwinds quarter over quarter, which I think totals to about 30-basis-points. So I guess just doing the math, the rest of the quarter over quarter deceleration in comps is about 50-basis-points, and I guess you outlined the Cyclospora. Which is a large chunk of that. So I just wanna make sure I have that math right. there is just a lot of moving pieces here.

So I was hoping maybe you would be willing to kinda just level set on what is that what does that core grocery comp x pharmacy And how is that you mentioned kind of some of the fresh categories maybe clouding the picture of market share. Could you just add a little more color on how you feel about market share and what that fresh versus nonfresh dynamic looks like. Leah.

Gregory S. Foran: Great questions, Kelly, and we will dissect this as best we can when we do not disclose. Every single piece of data. But look. David and I have been chatting about this. And, I think you will be in a place to answer this 1.

David John Christopher Kennerley: Leah. Okay. So Kelly, let me let me try and unpack this 1 for you. So the inflation reduction act, obviously, you know, we would been pretty clear that would have an impact was a 140-basis-point impact to ID sales in the quarter. That was about 10-basis-points worse than Q1. And in the balance of the year, we expect it to get worse again largely as a result of new drugs coming into the formulary starting in January. No profit impact. To stress. We then had brand generic. So we are seeing a greater shift towards generic. And away from branded. That obviously hurts the sales. Again, no impact on the profit, and that was about 60-basis-points.

Eggs, you know, we saw it moderate, but it is still about a 30-basis-point impact to ID sales. We then had on Cyclospora a 35-basis-point impact to total company IDs Just to stress, that is really the impact from produce alone. So when you add all of those things up, you know, that is roughly a 265 basis point headwind to the sort of comparable point versus last year? Just in terms of the market share, and then, you know, I will hand it back to Gregory for any additional comments.

The point on the market share is 1 of the things we are really pleased about through the first half of the year, and it was 1 of our objectives, was to widen the gap to Circana's rest of market. So you know, that sort of grocery competitive set. And we have done that, and we are really, really pleased about that. We maintained the gap that we saw in Q1 in Q2. And the point is we have got largely a higher fresh mix so we were more impacted or our hypothesis, we were more by cyclospora So our ability to hold that gap we are really encouraged about.

And when you break it down category by category, and look at our market share versus the Circana rest of market, Really pleased with it on a category by category basis.

Gregory S. Foran: I think that is exactly right, David. And you know, so far as we get into Q3, it is where we would expect to be. You know, we are still seeing a little bit of hangover from cyclospora, but each week, that lessens. And Q3 is where we want it to be.

Operator: Your next question comes from the line of Leah Jordan with Goldman Sachs. Your line is open. Please go ahead.

Leah Jordan: Hi, good morning. Thank you for taking our question. On the fuel margin, can you talk about what is baked into the guide for the back half versus the front half? And how much of a tailwind has this been versus your initial plan for the year? And how do you think about lapping this heading into next year?

David John Christopher Kennerley: Leah. Thanks for the questions. David here. So as I think about Q2, couple of things. We saw gallons up slightly. We outperformed the market on gallons, so we were pleased about that. If you look at CPG, so our sort of profit per gallon, we were, again, up slightly. When you think about total fuel profit, year over year, actually, it was not a huge tailwind for us. It was basically kind of I am gonna call it low single digit profit growth on the fuel business.

As we built into our guidance for the balance of the year, we are expecting and we have baked into that fuel margins will be softer than H1, and that is what we have got in the outlook. Obviously, there is a huge amount of volatility in the fuel business. Which makes it difficult to call. But our expectation is softer than we are seeing in H1.

Operator: Your next question comes from the line of Simeon Gutman with Morgan Stanley. Your line is open. Please go ahead.

Simeon Gutman: Gregory, hey, David. So, Gregory, we have a turnaround agenda or transformation, and I am sure you will get more meat on it in October. The competitive and consumer backdrop feels like it is getting a little more difficult. And so at the quarter, you know, sales weakened, but you are holding profit well. Can you help us reconcile those 2 things at this stage of your turnaround? How do you think about the trade off between protecting near term profits and making the investments necessary to improve the customer proposition and then, obviously, gain market share. Thanks.

Gregory S. Foran: Hi, Simeon. Good to get your question. Leah. It is getting a little bit tighter out there, and I would say that what we are seeing is the consumer continues to be disciplined. They are not absent. They are turning up to the stores, but they are pretty disciplined about what they buy. I actually do not mind that. I like the fact that it is getting tight and tough, because I think those conditions create opportunities if you have got a good plan and you have got a great team. To execute. That team is coming together, and I am pleased with how that is looking.

The other thing I would say to you is that 200 days into the job, I actually see even more opportunities than what I thought when I started. So I spend any time sort of going, I am not sure how we are going to fund this, how we are going to make it work. You know, whether it is what I am seeing with unknown shrinkage, whether what I see with out of stocks, whether it is what I see with goods not for resale, whether I see cost of goods, imports, Actually, all of those things are actually bigger than what I what I thought. After 30 days.

And I am really pleased with the discipline that we got in the business in terms of going after them. So it is tough. You have got to deal with the environment and conditions that we are playing in. I actually think that is to our advantage at the moment. We are assembling a team that I think will be a world class team of retailers. We are clear on the plan, and we know how to execute it, and we did exactly that. In Q2. And I am pretty comfortable that we will do it in Q3 and Q4. So I see the buckets of money.

I know that we can get after them, and I am feeling very good about the business.

Operator: Your next question comes from the line of Tom Palmer with JPMorgan. Your line is open. Please go ahead.

Tom Palmer: Good morning, and thanks for the question. I did wanna dive a little bit into the gross margin that we saw in the second quarter. There were kind of 4 bucketed items in the press release. Right? The e-comm profitability, pharma sourcing, and the tariff refunds. Could you maybe frame their order of importance in terms of driving that margin expansion this quarter? And then I think it would be helpful if you could maybe quantify in some form the tariff refund either in dollars or whether the magnitude you know, swung gross margin ex fuel from you know, flatter to positive? Thank you.

David John Christopher Kennerley: Hey, Tom. Thanks for the for the question. So we were pleased with FIFO gross in the quarter. You know, we would always communicated that you know, our plan was to grow FIFO gross on a full year basis. We feel good that we are gonna be able to do that through quarter 3 and quarter 4. And I think as I reflect on kind of the model, and this will be the go forward model, it is about take cost out, invest in the business, but also grow margins over time. So know, we expect to do that through the balance of the year. And, obviously, we will talk more about our multiyear plans October.

So as I think about gross margin, I think a few things to think about. We were pleased with the e comm performance. That was a positive. Our media performance, as we said, you know, best performance in, I think, 5 years. And then the pharmacy mix, as well as good sourcing savings. So that is kind of broadly in terms of sort of order of importance. I wanna stress they were all you know, pretty decent performance. it is not like any of these were small On the negative, we did see some shrink downside mainly in fresh. Some of that, not all of that, was related to cyclospora. So cyclospora definitely impacted us.

More than we expected on the shrink side. And then the other thing, you know, obviously, with increasing fuel costs, we did see a headwind relating to in our transportation line from fuel. Sort of similar impact to what we saw in Q1, And obviously, that could be a headwind that we need to offset through the balance of the year. In terms of tariffs, I would I am not going to-- we are not going to quantify the number, but I am gonna tell you the way we think about it. Number 1, the number was pretty modest. And the way we think about that is if we get tariffs, we will spend it.

If we do not get tariffs, we will not spend it. So you know, overall, it was a neutral impact to gross margin because we reinvest that money back, and that is gonna be the model going forward if we are to get any further refunds.

Operator: Your next question comes from the line of Gregory Melich with Evercore. Your line is currently opening. Please go ahead.

Analyst: Hi. Thanks. I wanted to go, back, I think, in prepared comments. You said traffic was positive in the quarter. Could you help unpack that a little bit as to the sequential change in that And then if that is the case, it seems like ticket was down. Was that what was driving that? Was it mix, items, basket? Inflation?

Gregory S. Foran: Leah. Thanks, Gregory. Good question. Yep. We did have traffic up slightly. And we are pleased with that and ticket was down. And I think you have picked the key items here. I think the customer is pretty disciplined. You know, Snap has an impact. Gas had an impact. Less item in the basket. What I would say is that where we are running our value proposition actually, we went against that trend in terms of getting the extra items in the basket. So overall, you are correct. Yep.

Operator: Your next question comes from the line of Krisztina Katai with Deutsche Bank. Your line is open. Please go ahead.

Krisztina Katai: Hi, good morning. Thanks for taking the question. Gregory, a lot of the discussion today has focused on value, but some of the strongest examples that you highlighted included deli bakery prepared foods, think rotisserie chicken, and private brands. When you look at the categories that are gaining with dollar and unit share, what is proving most important for the customer? What are some of the most important characteristics that you would find and how does that what does that suggest about progress future growth Maybe more sort of merchandising driven than price driven.

And then I wanted to ask a follow-up, I do not know if I heard this, but what did you assume in the back half of the year incremental diesel and freight cost? Thank you.

Gregory S. Foran: Great. Thanks, Christine. I will take the first bit, and David, if you can pick up diesel freight costs, etcetera. You know, what we are what we are seeing is pretty much, if anything, has a natural organic protein health component to it, Christina. that is working extremely well. We also see where we do a great value proposition. That works extremely well. So you know, an item that we got on to just recently was a $20-sushi-plate. And we do pretty well with sushi. I think we may be just about the biggest seller of sushi in America. And we do well with that. it is in a number of our stores.

We then introduce an item which is $20, sort of a family pack I think it took about 3 weeks for that item to get over $1 million. And you know, the excitement that I see as I get around is palpable. So anything sort of that has to do with health, organic, etcetera, works. Anything that is answering a customer's question around value, what is for dinner, is working well. You know, we launched a range of private selection frozen meals that I spoke about. They are just absolutely taken off. They are they are exceptional quality, great value. Customers, as I said, they are not absent. They are just disciplined.

And as a retailer, it is our job to be their agent, and that is exactly what we charge our merchants with doing. David?

David John Christopher Kennerley: Leah. Let me just Christina, cover the question on diesel and freight. So the important thing for us is we expect gross margin to be positive through the second half of the year. We have assumed that we will get some incremental headwinds from diesel and freight costs through the balance of the year. But that is embedded in the outlook. Of positive FIFO growth through the balance of year and on a full year basis.

Operator: Your next question comes from the line of Rupesh Parikh with Oppenheimer. Your line is open. Please go ahead.

Rupesh Parikh: Good morning, and thanks for taking my question. Just going back to your new store strategy and M&A, just given the Giant Eagle acquisition, should we think about balancing organic store growth versus M&A? And then second, you know, as we are in a weaker backdrop, does that at all impact how aggressive you are in store growth?

David John Christopher Kennerley: Rupesh, let me take that 1. You know, we 1 of the things I think we had 12 major store projects go live this quarter, combination of new stores, major remodels, etcetera. You know, you know, it is gonna be a clear element of our strategy going forward, which is to open more stores. You know, we are gonna do that both in geographies that we think are high growth, but we are also going to do that in places where we exist already but we feel that we have an opportunity to give consumers the opportunity to see Kroger stores and take share from competitors. So I think there is 2 angles to organic store growth.

From an M&A perspective, you know, a bit like Giant Eagle, we are gonna evaluate things as they come. We are gonna be extremely disciplined about it. Gregory already commented on Giant Eagle. At the end of the day, this is about customers, new customers in geographies where we do not play. We will continue to look at things, but we are also going to be extremely disciplined about capital allocation and making sure we get really good returns.

Operator: Your final question comes from the line of Scott Marks with Jefferies. Your line is open. Please go ahead.

Scott Marks: Hey. Good morning, all. Thanks very much for squeezing us in here. To come back to the topic of inflation for a second. Specifically, we have heard more recently from a number of suppliers, larger suppliers, that they intend to take pricing to offset their own inflationary input pressures. And they are willing to do so at the expense of volume. In fact, they are actually assuming that they may actually see their own elasticity maybe a little bit worse than what they have been historically.

So wondering if you can maybe just comment on that a little bit and help us understand what the conversations are like with suppliers and what levers you have in your toolkit as you work through work through these negotiations with them to try to help maintain that value for the customer. Thank you.

Gregory S. Foran: Leah. Thanks, Scott. We have got a number of things in our toolkit to answer that first 1 of them is we got a pretty extensive our brands program. And 1 which resonates well with customers, whether you are talking about opening price points and you are seeing us expand our range of SmartWay products there, you know, circa from about 130, we will get that up to 1 thousand. Over the next year and a bit. Some of those are already hitting the shelves, and we are very pleased with how they both look and taste and feel. Then, of course, we have got Kroger. We have got private selection. We have got simple truth.

So this extensive portfolio where we picked up another 50-basis-points of penetration. We will talk some more with you in October about how we see that rolling out. So customers have choices, and it is up to us to provide them with that choice. Our job is to be the customer's agent. And we wanna be fair, and open and have great relationships with all our suppliers. But at the same time, we have to also represent the consumer. And if price increases are justified and make sense, then I am happy that as a team of merchants, we sit down and we work through those.

What we do not wanna get in is a situation where people can just turn up and put prices up. And not have full justification. For that sort of increase I am not in the game of using inflation as a way of generating extra sales. I am in a game of generating great comp sales, ID sales, because we represent terrific value to the customer, and they trust that Kroger is their representative in creating great value. So we will deal with that as it comes along. I would say that our relationships with suppliers is very good and very healthy.

I really like the way that, you know, Mary Ellen and Mike and Carl are managing with Edward as part of our business. And I think we are in a good spot. I would want to, at this stage, thank everyone for your continued interest in Kroger and know that we really value that. And finally, on September 11 we paused to remember those lost and to thank first responders and service members who protect our communities every day. Thank you all for joining us.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

Should you buy stock in Kroger right now?

Before you buy stock in Kroger, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Kroger wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

See the 10 stocks »

*Stock Advisor returns as of September 11, 2026.

The Motley Fool recommends Kroger. The Motley Fool has a disclosure policy .

Show comments

0

From Our Partners