Kroger's adjusted EPS rose 5% on 57 million fewer shares

Kroger led its second-quarter release with adjusted earnings per diluted share of $1.09, up 5%. The chief executive’s quote put that number in its first line.

The adjusted earnings behind it were $667 million, against $695 million a year earlier — down 4.0%.

Both figures are in the same release, a few pages apart. Between them sit 57 million shares that no longer exist.

Almost every measure in the quarter fell

Sales rose 2.0%, to $34,621 million. Identical sales without fuel rose 0.2% against 3.4% a year earlier, and the company states that an unfavourable 138 basis point impact from the Inflation Reduction Act sits inside that figure. Adjusted FIFO operating profit — the profit measure Kroger itself puts in its guidance — fell 1.4%, to $1,076 million.

Then the denominator changed.

The arithmetic

2Q26      2Q25    change
Adjusted net earnings                  667       695     -4.0%
Average diluted shares                 608       665     -8.6%
Adjusted earnings per share          $1.09     $1.04     +4.8%
At the prior-year share count        $1.00

Divide the same $667 million by last year’s 665 million shares and adjusted earnings per share is $1.00. Not $1.09, and not an increase.

Kroger’s own reconciliation runs $5 million below these numerators because a slice of earnings is allocated to participating securities, which moves the cents but not the direction. Over the first two quarters the pattern holds and is slightly milder: adjusted earnings down 2.5%, the average share count down 7.8%, adjusted EPS up 5.5%.

The 10-Q, filed on 18 September, states it outright:

The increase in adjusted net earnings per diluted share resulted primarily from lower common shares outstanding and a decreased LIFO charge, partially offset by decreased adjusted FIFO operating profit, excluding fuel, and higher income tax expense.

The press release of 11 September contains no such sentence. There the chief financial officer attributes the 5% to “cost savings, strong pharmacy and fuel performance, and improvement in the profitability of our eCommerce business.” Both documents are accurate. Only one of them puts the share count first, and it arrived a week after the headlines were written.

Operating profit rose 12.5%. The measure the company prefers fell.

The reported line looks better than the adjusted one this quarter, which is the reverse of the usual arrangement. Table 7 of the release shows why in three steps.

2Q26      2Q25    change
Adjusted FIFO operating profit         1,076     1,091      -15
less adjustment items                   66       166     +100
FIFO operating profit                  1,010       925      +85
less LIFO charge                        39        62      +23
Operating profit                         971       863     +108

The $108 million gain is −$15 million of business plus $100 million of charges that did not repeat plus $23 million of a smaller LIFO charge.

What did not repeat is specific. Merger-related litigation and settlement charges — the tail of the abandoned Albertsons transaction — were $13 million against $121 million. A $47 million severance charge is absent. Against those, a new line appeared: $56 million of transformation costs, which the company describes as third-party consulting fees on business transformation and cost-saving initiatives.

Where the 57 million shares came from

Not from this year alone. Kroger bought 21.2 million shares in the first two quarters, at an average $60.63 including excise tax, which the 10-Q rounds to $1.3 billion. The average diluted count fell by 57 million. Most of that reduction was already done, under a $7.5 billion authorisation from December 2024 that the filing says was exhausted in the first quarter of this year. What is running now is a $2.0 billion programme from December 2025, with $801 million left at 15 August.

The cash statement shows what the current pace costs.

2026      2025    change
Net cash provided by operating activities     3,085     3,688    -16.3%
Payments for property and equipment           2,437     1,968    +23.8%
Cash left after capital expenditure             648     1,720    -62.3%
Treasury stock purchases                      1,271       203
Dividends paid                                  431       422
Payments on long-term debt and finance leases   604       122
Cash and temporary cash investments, end      1,676     4,883

Buybacks and dividends together took $1,702 million while the business left $648 million after capital expenditure. The $1,054 million difference came out of the balance sheet: cash fell from $3,334 million at the start of the year to $1,676 million, a drop of $1,658 million, against an increase of $924 million over the same stretch last year. Net total debt to adjusted EBITDA, on the company’s own reconciliation, is 1.91 against 1.63.

Two things moved operating cash flow. Inventories consumed $460 million this year and released $92 million last year — a $552 million swing that the 10-Q attributes to timing, improved in-stock conditions and higher fuel inventory costs. Receivables took another $162 million against $12 million. Working the other way, income taxes receivable and payable contributed $219 million against $6 million.

Capital spending is the other half, and it is deliberate: total capital investments excluding lease buyouts rose 30.6%, to $2,651 million, against reaffirmed full-year guidance of $3.8–4.0 billion. Net interest expense rose 8.3% in the quarter, to $156 million, which the filing puts down to smaller cash balances earning less rather than more expensive debt.

The sales guidance cut is not a change of definition

When a company cuts a range and footnotes a policy item in the same breath, the first thing to check is whether the footnote is new. Here it is not.

18 June      11 September
Identical sales without fuel      1.0% - 2.0%     0.2% - 0.8%
Adjusted FIFO operating profit    $5.0 - 5.2bn    $5.0 - 5.2bn
Adjusted EPS                      $5.10 - 5.30    $5.10 - 5.30
Free cash flow                    $2.7 - 2.9bn    $2.7 - 2.9bn
Capital expenditure               $3.8 - 4.0bn    $3.8 - 4.0bn
Stated IRA impact inside the      ~130 bp         ~140 bp
identical sales range

June’s range already carried roughly 130 basis points of Inflation Reduction Act headwind; September’s carries roughly 140. Ten basis points of assumption cannot move a range down by 80 to 120. The sales cut is a sales cut — and every profit line in the table was reaffirmed alongside it.

Kroger has also agreed to buy Giant Eagle for about $1.65 billion, announced on 1 July: $1.25 billion in cash and roughly $400 million of assumed debt, expected to close in fiscal 2027. The 10-Q lists it among the company’s liquidity needs.

What this article does not settle

• Buying back stock is not a fault. A company that thinks its shares are cheap and has the cash is doing what the authorisation exists for. The point here is narrower: a per-share figure that rises while the earnings behind it fall is describing the denominator, and the release led with the per-share figure.
• We cannot check the free cash flow guidance. Kroger reaffirmed $2.7–2.9 billion for the year, does not define the measure in these documents, and states it “is unable to provide a full reconciliation of the GAAP and non-GAAP measures used in 2026 guidance without unreasonable effort.” Our $648 million is operating cash flow less payments for property and equipment over 28 weeks, which is our subtraction and is probably not the company’s measure. It is not evidence of a shortfall.
• The first half is 28 weeks, running from 31 January to 15 August. What remains of the year is shorter, so half-year run rates do not annualise.
• No consensus comparison. Analyst estimates are not filings and we do not verify them. Every comparison here is against Kroger’s own prior-year figures.
• Adjustment items are company-defined, including which costs count as transformation. We have reproduced the reconciliation, not judged it.
• The 138 basis point Inflation Reduction Act impact is the company’s figure. We could not independently measure it, and the 1.58% identical sales number that follows from adding it back is arithmetic on a company estimate.
• The exhibits are furnished, not filed. The 10-Q is the filed document and carries the statements used here.

Check it yourself

In the 10-Q, the earnings-per-share reconciliation is the short table in the notes that splits the numerator from the denominator — that is where the $636 million and the 608 million shares sit side by side. The sentence naming lower common shares outstanding is in the management discussion, under the heading for net earnings per diluted share. The repurchase note and the $801 million remaining are a few pages further on, under liquidity.

In the release, Table 6 carries adjusted net earnings and Table 7 the operating profit bridge. They are separate tables, which is why a reader can hold $1.09 and $667 million in the same hand without noticing they disagree.

One piece of coverage we found, a Motley Fool article from 13 September, did note the adjusted-earnings decline in two sentences. It is linked because it is the exception, not because anything here rests on it.

For the same shape measured elsewhere, see Casey’s, where EPS rose 28% as free cash flow fell the same 28%, nCino, which repurchased more than it generated in a half year, and the screen of companies whose profit rose while free cash flow fell. For the point at which capital spending overtakes buybacks across a set of large issuers, see that comparison.

The share prices are daily bars from Databento’s EQUS.SUMMARY dataset, pulled with scripts/quote.mjs in this site’s repository, and are shown to 18 September 2026.

Every calculation above is written out in this article’s front matter and re-checked when the site builds.

If a figure here does not match a filing, tell us and it will be corrected on the article and on the corrections log, with the date.

A different component bridge appears in BlackBerry’s revenue growth: QNX expanded while a large licensing transaction amplified the headline. Its segment outlook shows what management expects to carry into the next quarter.

A later comparison at Conagra separates investment earnings from cash distributions when EPS rises despite lower operating profit.