ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of financial condition and results of operations of The Kroger Co. should be read in conjunction with the “Forward-looking Statements” section set forth in Part I and the “Risk Factors” section set forth in Item 1A of Part I of this Annual Report on Form 10-K. MD&A is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and the accompanying notes thereto contained in Item 8 of this Annual Report on Form 10-K, as well as Part II, Item 7 “Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended February 1, 2025, which provides additional information on comparisons of fiscal years 2024 and 2023.
OUR VALUE CREATION MODEL – DELIVERING CONSISTENT AND ATTRACTIVE TOTAL SHAREHOLDER RETURN
Kroger’s proven value creation model is allowing us to deliver today and invest for the future. The foundation of our value creation model is our omnichannel retail business, including fuel and health and wellness. By executing on our go-to-market strategy built on Fresh, Our Brands , Personalization and eCommerce, we are creating a shopping experience that builds loyalty and grows sales. Our retail business generates traffic and data which accelerates growth in our high operating margin alternative profit businesses, like retail media. In turn, the value generated from these businesses enables us to reinvest back into our retail business.
We are focused on our top priorities and delivering an exceptional customer experience to accelerate this flywheel effect. By expanding our store network and improving our eCommerce capabilities, we expect to grow households and increase sales. Our model provides various ways to generate net earnings growth.
We believe this will be achieved by:
Growing identical sales without fuel. Our plan involves maximizing growth opportunities in our retail business and is supported by continued strategic investments in our associates and greater value for our customers to ensure we deliver a full, fresh and friendly experience for every customer, every time. In an effort to serve more households, we plan to invest in major storing projects that allow us to increase both in-store and eCommerce sales. As more and more customers incorporate eCommerce into their permanent routines, we expect eCommerce sales to grow at a double-digit rate – a faster pace than other food at home sales – over time; and
Expanding operating margin through long-term initiatives in gross margin, growing alternative profit businesses and productivity and cost savings initiatives that are focused on simplifying our business and modernizing our ways of working. Together, we expect these will enable us to improve operating margin, while balancing strategic price investments for customers and investments in associates to improve customer experience.
We expect to continue to generate strong free cash flow and are committed to being disciplined with capital deployment in support of our value creation model and stated capital allocation priorities. Our first priority is to invest in the business through attractive high return opportunities that drive long-term sustainable net earnings growth. We are committed to maintaining our current investment grade debt rating and returning to our net total debt to adjusted EBITDA ratio target range of 2.30 to 2.50. We also expect to continue to grow our dividend over time and return excess cash to shareholders via stock repurchases, subject to Board approval.
We expect our value creation model will result in total shareholder return within our target range of 8% to 11% over time.
2025 EXECUTIVE SUMMARY
We achieved strong results in 2025, driven by continued performance in eCommerce and pharmacy along with momentum in Fresh and Our Brands . We saw underlying improvements in market share trends and solid sales growth that reflect meaningful progress and demonstrate the strengthening of the business. Food volumes improved, and grocery sales were a larger percentage of our sales mix, leading to the final period of the quarter resulting in positive share gains. Through continued price investments, disciplined cost management, and improved store execution, we maintained our competitive position against our major competitors.
We will continue to simplify our business and improve our cost structure to redeploy those savings into areas that drive growth. Our refreshed hybrid fulfillment model and ongoing reviews of non-core assets enable us to better allocate resources to core priorities and to reinvest savings into areas that drive growth and support lower prices for customers. We have accelerated new store investment and are leveraging our stores and delivery partners to support our presence in key markets. Additionally, we invested in service and labor hours to ensure that our stores are well-staffed, and we remain focused on equipping our associates with the tools, technology, data, and support needed to serve customers well. Collectively, these actions support faster and more efficient execution of our strategies, positioning us to continue delivering value for both our customers and to generate attractive and sustainable returns for shareholders.
The following table provides highlights of our financial performance:
Financial Performance Data
($ in millions, except per share amounts)
January 31,
Percentage
February 1,
Change
Sales (1)
Sales without fuel (1)
Identical sales excluding fuel and Adjusted Items (2)
FIFO gross margin, excluding rent, depreciation and amortization, fuel and Adjusted Items, bps increase (1)
OG&A rate, excluding fuel and Adjusted Items, bps increase (1)
Operating profit (1)
Adjusted FIFO operating profit (1)
Net earnings attributable to The Kroger Co.
Adjusted net earnings attributable to The Kroger Co.
Net earnings attributable to The Kroger Co. per diluted common share
Adjusted net earnings attributable to The Kroger Co. per diluted common share
Dividends paid
Dividends paid per common share
Share repurchases (3)
(Decrease) increase in total debt, including obligations under finance leases compared to prior fiscal year end
Total sales in 2024 includes $2,021 of Kroger Specialty Pharmacy sales. In 2025, the sale of Kroger Specialty Pharmacy had a positive effect on the FIFO gross margin rate, excluding rent, depreciation and amortization, fuel and Adjusted Items, as defined below, and a negative effect on the OG&A rate, excluding fuel and the 2025 and 2024 Adjusted Items, as defined below. It had no material effect on operating profit.
For the first quarter of 2025, identical sales, excluding fuel, were adjusted to exclude stores involved in the labor disputes in Colorado. Identical sales, excluding fuel, were excluded for the first four weeks of the first quarters of 2025 and 2024 for stores involved in this labor dispute.
The share repurchases include excise tax related to the shares repurchased, the final delivery under the ASR agreement that occurred during the third quarter of 2025 (see Note 13 to the Consolidated Financial Statements), the 1999 Repurchase Program and the resumed open market repurchases in 2025 under the December 2024 Repurchase Program. The 1999 Repurchase Program and the December 2024 Repurchase Program are defined in the “Common Share Repurchase Programs” section below.
OVERVIEW
Notable items for 2025 are:
Shareholder Return
Achieved net earnings attributable to The Kroger Co. per diluted common share of $1.54. These results include $2.5 billion of fulfillment network impairment and related charges.
Achieved adjusted net earnings attributable to The Kroger Co. per diluted common share of $4.85, which represents a 9% increase compared to 2024.
Achieved operating profit of $1.9 billion. These results include $2.5 billion of fulfillment network impairment and related charges.
Achieved adjusted FIFO operating profit of $4.9 billion, which represents a 5% increase compared to 2024.
Generated cash flows from operations of $7.3 billion, which represents a 26% increase compared to 2024.
Returned $4.3 billion to shareholders from share repurchases and dividend payments.
Other Financial Results
Identical sales, excluding fuel and Adjusted Items, increased 2.9% in 2025, compared to 2024, primarily driven by eCommerce, Pharmacy and Fresh departments.
eCommerce sales increased 16% compared to 2024. Excluding the effect of fulfillment center exits in markets where Kroger does not operate stores, the sale of Vitacost.com, and the discontinuation of Ship Marketplace, eCommerce sales increased 17% compared to 2024. eCommerce sales include products ordered online and picked up at our stores and our Delivery solutions. Our Delivery solutions include orders delivered to customers from retail store locations, customer fulfillment centers and orders placed through third-party platforms. eCommerce sales growth was led by strong demand for our Delivery solutions.
Alternative profit streams contributed $1.5 billion of operating profit in 2025.
Our LIFO charge was $157 million in 2025, compared to $95 million in 2024. The increase in the LIFO charge was due to higher product cost inflation for 2025, compared to 2024.
Significant Events
During the first quarter of 2025, w e recognized store closure costs of $100 million, $77 million net of tax, related to the planned closing of approximately 60 stores. As a result of these store closures, we expect a modest financial benefit and we are committed to reinvesting these savings back into the customer experience.
During the second quarter of 2025, we approved and implemented a plan to reduce our corporate administrative team by nearly 1,000 associates, resulting in a charge for severance and related benefits of $47 million, $37 million net of tax. This reorganization is expected to increase efficiency and reduce administrative costs, enabling us to reinvest back into our retail business.
During 2025, we completed a strategic review of our eCommerce operations with the intention of improving the customer experience while accelerating eCommerce profitability. Following this review, we identified opportunities to optimize our automated fulfillment network by closing facilities in Pleasant Prairie, Wis.; Frederick, Md.; and Groveland, Fla. in January 2026, which had not met operational or financial expectations, and canceled plans for the site in Charlotte, N.C. As a result of these closures and the automated fulfillment network not meeting operational or financial expectations, in 2025, we recorded impairment and related charges of $2.5 billion, $1.9 billion net of tax. We will continue to deliver eCommerce offerings using our store footprint, third-party delivery providers and automated fulfillment facilities where applicable. At the present time, in geographies where we see higher density of demand and better cost structure, we continue to evaluate performance and sustainability of automated fulfillment. These facility closures are expected to have a positive effect on eCommerce operating profit and a neutral effect on identical sales without fuel.
OUR BUSINESS
The Kroger Co. (the “Company” or “Kroger”) was founded in 1883 and incorporated in 1902. Our Company is built on the foundation of our retail grocery business, which includes the added convenience of our retail pharmacies and fuel centers. Our strategy is focused on growing customer loyalty by delivering great value and convenience, and investing in Fresh, Our Brands , Personalization and eCommerce.
We also utilize the data and traffic generated by our retail business to deliver incremental value and services for our customers that generate alternative profit streams. These alternative profit streams would not exist without our core retail business.
Our revenues are predominately earned and cash is generated as consumer products are sold to customers in our stores, fuel centers and via our online platforms. We earn income predominately by selling products at price levels that produce revenues in excess of the costs we incur to make these products available to our customers. Such costs include procurement and distribution costs, facility occupancy and operational costs, and overhead expenses. Our retail operations, which represent substantially all of our consolidated sales, are our only reportable segment.
Kroger is diversified across brands, product categories, channels of distribution, geographies and consumer demographics. Our combination of assets includes the following:
Stores
As of January 31, 2026, Kroger operates supermarkets under a variety of local banner names in 35 states and the District of Columbia. As of January 31, 2026, Kroger operated, either directly or through its subsidiaries, 2,697 supermarkets, of which 2,250 had pharmacies and 1,731 had fuel centers. We connect with customers through our growing network of in-store and digital shopping options, delivering a consistent full, fresh, and friendly customer experience. Fuel sales are an important part of our revenue, net earnings and loyalty offering. Our fuel strategy is to include a fuel center at each of our supermarket locations when it is feasible and it is expected to be profitable.
eCommerce
We offer a convenient shopping experience for our customers regardless of how they choose to shop with us, including Pickup and Delivery. We offer Pickup and Harris Teeter ExpressLane™ — personalized, order online, pick up at the store services — at 2,408 of our supermarkets and provide Delivery, which allows us to offer digital solutions to substantially all of our customers. Our Delivery solutions include orders delivered to customers from retail store locations, customer fulfillment centers and orders placed through third-party platforms. These channels allow us to serve customers anything, anytime, and anywhere with broad selection, convenience, and price. We also provide relevant customer-facing apps and interfaces that have the features customers want and that are also reliable, easy to use and deliver a seamless customer experience across our store and digital channels. We continue to make meaningful improvements in our eCommerce business and believe it will be an important growth driver and one of the key ways to attract new households.
Media
Kroger Precision Marketing, our retail media business, leverages our rich first-party data and deep customer relationships to provide targeted, measurable advertising solutions for consumer-packaged goods companies and a growing number of other industry partners. With insights drawn from the shopping behaviors of millions of loyal households, Kroger Precision Marketing enables advertisers to reach customers with relevant messaging across a variety of digital and in-store channels, including on-site search, display, social media, connected TV, and in-store placements.
We believe our retail media business represents a significant and growing opportunity. As advertisers increasingly seek returns on media, the ability to connect advertising spend directly to actual purchase behavior, Kroger Precision Marketing is uniquely positioned to deliver that capability at scale. Our ability to link media impressions directly to household transactions across both digital and in-store purchases provides our advertising partners with best-in-class performance measurement.
Kroger Precision Marketing is a key contributor to our alternative profit strategy, which focuses on generating revenue from assets and capabilities that complement our core grocery business. The retail media business carries an attractive margin profile relative to our traditional operations and is an important driver of our digital profitability. We intend to continue investing in the technology, talent, and collaborations needed to grow this business and expand the range of solutions we offer to advertisers.
Our Data
Kroger serves approximately 63 million households annually, and because of our rewards program, over 95% of customer transactions are tethered to a Kroger loyalty card. Our over 20 years of investment in data science capabilities allows us to utilize this data to create personalized experiences and value for our customers and enables our growing, high operating margin alternative profit businesses, including data analytic services and third-party media revenue.
Merchandising and Our Brands
Our Brands products play an important role in our merchandising strategy and represented over $39 billion of our sales in 2025. We own 33 food production plants, primarily bakeries and dairies, which supply approximately 20% of Our Brands units sold in our supermarkets; the remaining Our Brands items are produced to our strict specifications by outside manufacturers.
USE OF NON-GAAP FINANCIAL MEASURES
The accompanying Consolidated Financial Statements, including the related notes, are presented in accordance with U.S. generally accepted accounting principles (“GAAP”). We provide non-GAAP measures, including First-In, First-Out (“FIFO”) gross margin, FIFO operating profit, adjusted FIFO operating profit, adjusted net earnings and adjusted net earnings per diluted share, because management believes these metrics are useful to investors and analysts. These non-GAAP financial measures should not be considered as an alternative to gross margin, operating profit, net earnings and net earnings per diluted share or any other GAAP measure of performance. These measures should not be reviewed in isolation or considered as a substitute for our financial results as reported in accordance with GAAP.
We calculate FIFO gross margin as FIFO gross profit divided by sales. FIFO gross profit is calculated as sales less merchandise costs, including advertising, warehousing and transportation expenses, but excluding the Last-In, First-Out (“LIFO”) charge, rent and depreciation and amortization. FIFO gross margin is an important measure used by management, and management believes FIFO gross margin is a useful metric to investors and analysts because it measures the merchandising and operational effectiveness of our go-to-market strategy.
We calculate FIFO operating profit as operating profit excluding the LIFO charge. FIFO operating profit is an important measure used by management, and management believes FIFO operating profit is a useful metric to investors and analysts because it measures the operational effectiveness of our financial model .
The adjusted net earnings, adjusted net earnings per diluted share and adjusted FIFO operating profit metrics are important measures used by management to compare the performance of core operating results between periods. We believe adjusted net earnings, adjusted net earnings per diluted share and adjusted FIFO operating profit are useful metrics to investors and analysts because they present more accurate year-over-year comparisons of our net earnings, net earnings per diluted share and FIFO operating profit because adjusted items are not the result of our normal operations. Net earnings for 2025 include the following, which we define as the “2025 Adjusted Items:”
Charges to operating, general and administrative (“OG&A”) of $100 million, $77 million net of tax, for store closures; $161 million, $121 million net of tax, for merger-related litigation and settlement charges; $50 million, $34 million net of tax, for impairment of intangible assets; $47 million, $37 million net of tax, for severance charge and related benefits; $2.5 billion, $1.9 billion net of tax, for fulfillment network impairment and related charges, and credits to OG&A of $6 million, $3 million net of tax, for opioid settlement charges and vendor reserves, and $21 million, $16 million net of tax, for executive stock compensation for a former executive (the “2025 OG&A Adjusted Items”).
A loss in other income (expense) of $41 million, $33 million net of tax, for the unrealized loss on investments (the “2025 Other Income (Expense) Adjusted Item”).
A reduction to income tax expense of $7 million for executive stock compensation for a former executive income tax adjustment and a reduction to income tax expense of $34 million from recognizing deferred tax assets related to the sale of our Vitacost.com business (the “2025 Income Tax Expense Adjusted Items”).
A net charge to Sales, Merchandise costs and OG&A of $44 million, $33 million net of tax, for labor dispute charges (the “Labor Dispute”).
Net earnings for 2024 include the following, which we define as the “2024 Adjusted Items:”
Charges to OG&A of $32 million, $24 million net of tax, for severance charge and related benefits, $30 million, $23 million net of tax, for impairment of intangible assets, $25 million, $19 million net of tax, for property losses, $684 million, $489 million net of tax, for merger-related costs, net of a credit to OG&A of $27 million, $21 million net of tax, for opioid settlement charges (the “2024 OG&A Adjusted Items”).
A loss in other income (expense) of $148 million, $112 million net of tax, for the unrealized loss on investments, a charge to other income (expense) of $34 million, $26 million net of tax, for merger-related net interest expense and a gain in other income (expense) of $79 million, $60 million net of tax, on the sale of Kroger Specialty Pharmacy (the “2024 Other Income (Expense) Adjusted Items”).
A reduction to income tax expense of $31 million from recognizing deferred tax assets related to the sale of our Kroger Specialty Pharmacy business (the “2024 Income Tax Expense Adjusted Item”).
Net earnings for 2023 include $179 million, $144 million net of tax, due to the 53 rd week in fiscal year 2023 (the “Extra Week”). In addition, net earnings for 2023 include the following, which we define as the “2023 Adjusted Items:”
Charges to OG&A of $316 million, $268 million net of tax, for merger-related costs and $1.5 billion, $1.2 billion net of tax, for opioid settlement charges (the “2023 OG&A Adjusted Items”).
A gain in other income (expense) of $151 million, $116 million net of tax, for the unrealized gain on investments (the “2023 Other Income (Expense) Adjusted Item”).
The table below provides a reconciliation of net earnings attributable to The Kroger Co. to adjusted net earnings attributable to The Kroger Co. and a reconciliation of net earnings attributable to The Kroger Co. per diluted common share to adjusted net earnings attributable to The Kroger Co. per diluted common share excluding the 2025, 2024 and 2023 Adjusted Items :
Net Earnings per Diluted Share excluding the Adjusted Items
($ in millions, except per share amounts)
Net earnings attributable to The Kroger Co.
(Income) expense adjustments
Adjustment for loss (gain) on investments (1)(2)
Adjustment for labor dispute charges (1)(3)
Adjustment for store closures (1)(4)
Adjustment for executive stock compensation for a former executive (1)(5)
Adjustment for merger-related costs (1)(6)
Adjustment for merger-related litigation and settlement charges (1)(7)
Adjustment for property losses (1)(8)
Adjustment for merger-related net interest expense (1)(9)
Adjustment for opioid settlement charges and vendor reserves (1)(10)
Adjustment for the impairment of intangible assets (1)(11)
Adjustment for gain on sale of Kroger Specialty Pharmacy (1)(12)
Adjustment for severance charge and related benefits (1)(13)
Adjustment for fulfillment network impairment and related charges (1)(14)
Executive stock compensation for a former executive income tax adjustment
Adjustment for income tax expense on sale of Kroger Specialty Pharmacy
Adjustment for income tax expense on sale of Vitacost.com
Total Adjusted Items
Net earnings attributable to The Kroger Co. excluding the Adjusted Items
Extra Week adjustment (1)(15)
Net earnings attributable to The Kroger Co. excluding the Adjusted Items and the Extra Week adjustment
Net earnings attributable to The Kroger Co. per diluted common share
(Income) expense adjustments
Adjustment for (gain) loss on investments (16)
Adjustment for labor dispute charges (16)
Adjustment for store closures (16)
Adjustment for executive stock compensation for a former executive (16)
Adjustment for merger-related costs (16)
Adjustment for merger-related litigation and settlement charges (16)
Adjustment for property losses (16)
Adjustment for merger-related net interest expense (16)
Adjustment for opioid settlement charges and vendor reserves (16)
Adjustment for the impairment of intangible assets (16)
Adjustment for gain on sale of Kroger Specialty Pharmacy (16)
Adjustment for severance charge and related benefits (16)
Adjustment for fulfillment network impairment and related charges (16)
Executive stock compensation for a former executive income tax adjustment (16)
Adjustment for income tax expense on sale of Kroger Specialty Pharmacy (16)
Adjustment for income tax expense on sale of Vitacost.com (16)
Total Adjusted Items
Net earnings attributable to The Kroger Co. per diluted common share excluding the Adjusted Items
Extra Week adjustment (16)
Net earnings attributable to The Kroger Co. per diluted common share excluding the Adjusted Items and the Extra Week adjustment
Average numbers of common shares used in diluted calculation
Net Earnings per Diluted Share excluding the Adjusted Items (continued)
($ in millions, except per share amounts)
The amounts presented represent the after-tax effect of each adjustment, which was calculated using discrete tax rates.
The pre-tax adjustments for loss (gain) on investments were $41 in 2025, $148 in 2024 and $(151) in 2023.
The pre-tax adjustment for labor dispute charges was $44.
The pre-tax adjustment for store closures was $100.
The pre-tax adjustment for executive stock compensation for a former executive was $(21).
The pre-tax adjustments for merger-related costs were $684 in 2024 and $316 in 2023.
The pre-tax adjustment for merger-related litigation and settlement charges was $161 for 2025.
The pre-tax adjustment for property losses was $25.
The pre-tax adjustment for merger-related net interest expense was $34.
The pre-tax adjustments for opioid settlement charges were $(6) in 2025, $(27) in 2024, and $1,475 in 2023.
The pre-tax adjustments for impairment of intangible assets were $50 in 2025 and $30 in 2024.
The pre-tax adjustment for gain on sale of Kroger Specialty Pharmacy was $(79).
The pre-tax adjustments for severance charge and related benefits were $47 in 2025 and $32 in 2024.
The pre-tax adjustment for fulfillment network impairment and related charges was $2,497.
The pre-tax Extra Week adjustment was $(179).
The amount presented represents the net earnings (loss) per diluted common share effect of each adjustment.
Key Performance Indicators
We evaluate our results of operations and cash flows using a variety of key performance indicators, such as sales, identical sales, excluding fuel and adjusted items, FIFO gross margin, adjusted FIFO operating profit, adjusted net earnings, adjusted net earnings per diluted share and return on invested capital. We use these financial metrics and related computations to evaluate our operational effectiveness and our results of operations from period to period and to plan for near and long-term operating and strategic decisions. These key performance indicators should not be reviewed in isolation or considered as a substitute for our financial results as reported in accordance with GAAP. These measures, which are described in more detail in this Annual Report on Form 10-K, may not be comparable to similarly-titled performance indicators used by other companies.
RESULTS OF OPERATIONS
Sales
Total Sales
($ in millions)
Percentage
Percentage
Change (1)
Change (2)
Adjusted (3)(6)
Total sales to retail customers without fuel (4)
Supermarket fuel sales
Other sales (5)
Total sales
This column represents the percentage change in 2025 compared to 2024.
This column represents the percentage change in 2024 compared to 2023 adjusted sales, which removes the Extra Week.
The 2023 adjusted column represents the items presented in the 2023 column adjusted to remove the Extra Week.
eCommerce sales are included in the “Total sales to retail customers without fuel” line above. eCommerce sales increased 16% in 2025, 11% in 2024 and 12% in 2023, excluding the Extra Week in 2023. Excluding the effect of fulfillment center exits in markets where Kroger does not operate stores, the sale of Vitacost.com, and the discontinuation of Ship Marketplace, eCommerce sales increased 17% in 2025. eCommerce sales include products ordered online and picked up at our stores and our Delivery solutions. Our Delivery solutions include orders delivered to customers from retail store locations, customer fulfillment centers and orders placed through third-party platforms. eCommerce sales growth was led by strong demand for our Delivery solutions.
Other sales primarily relate to external sales at food production plants, other pharmacy services, third-party media revenue and data analytic services. The increase in 2025, compared to 2024, is primarily due to an increase in other pharmacy services and third-party media revenue .
2024, 2023 and 2023 Adjusted sales by category have been reclassified to conform to the 2025 presentation.
Total sales increased in 2025, compared to 2024, by 0.4%. The increase was primarily due to an increase in total sales to retail customers without fuel, partially offset by a decrease in supermarket fuel sales and the sale of Kroger Specialty Pharmacy. Total supermarket fuel sales decreased 9.3% in 2025, compared to 2024, primarily due to a decrease in the average retail fuel price of 6.1% and a decrease in fuel gallons sold of 3.4%. The decrease in the average retail fuel price was caused by a decrease in the product cost of fuel. Total sales, excluding fuel, Kroger Specialty Pharmacy and the Labor Dispute, increased 3.1% in 2025, compared to 2024, which was primarily due to our identical sales increase, excluding fuel and the Labor Dispute, of 2.9%. Identical sales, excluding fuel and the Labor Dispute, for 2025, compared to 2024, increased primarily due to increased pharmacy, eCommerce and Fresh sales and increased spend per item, partially offset by a reduction in the number of units sold.
We calculate identical sales, excluding fuel, as sales to retail customers, including sales from all departments at identical supermarket locations and Delivery solutions. We define a supermarket as identical when it has been in operation without expansion or relocation for five full quarters. We include Kroger Delivery sales from customer fulfillment centers in the identical sales calculation if the delivery occurs in an existing Kroger supermarket geography or when the location has been in operation for five full quarters; closed facilities in which the delivery occurs in an existing Kroger supermarket geography remain in the identical sales calculation, while closed facilities in which the delivery does not occur in an existing Kroger supermarket geography are excluded from the identical sales calculation starting in the quarter the closure is announced. Although identical sales is a relatively standard term, numerous methods exist for calculating identical sales growth. As a result, the method used by our management to calculate identical sales may differ from methods other companies use to calculate identical sales. It is important to understand the methods used by other companies to calculate identical sales before comparing our identical sales to those of other such companies. Our identical sales results, excluding fuel, are summarized in the following tables. We used the identical sales, excluding fuel, dollar figures presented below to calculate percentage changes for 2025 and 2024.
Identical Sales
($ in millions)
Excluding Adjusted Items (1)
Excluding fuel
Excluding fuel
Identical sales, excluding fuel, were adjusted to exclude stores involved in the labor disputes in Colorado in the first quarter of 2025. Identical sales, excluding fuel, were excluded for the first four weeks of the first quarters of 2025 and 2024 for stores involved in this labor dispute.
Identical sales, excluding fuel, for 2024 were calculated on a 52-week basis by excluding week 1 of fiscal 2023 in our 2023 identical sales base.
Gross Margin, LIFO and FIFO Gross Margin
Our gross margin rates, as a percentage of sales, were 22.9% in 2025 and 22.3% in 2024. This increase resulted primarily from the sale of our Kroger Specialty Pharmacy business, which has a lower gross margin rate, sourcing improvements, lower shrink, lower supply chain costs and decreased fuel sales, which have a lower gross margin rate, partially offset by increased pharmacy sales, which have a lower gross margin rate, and increased price investments.
The following table provides the calculation of gross profit and gross margin in accordance with GAAP:
Gross Margin
($ in millions, except percentages)
Sales
Merchandise costs, including advertising, warehousing and transportation and LIFO charge, excluding rent and depreciation and amortization
Rent
Depreciation and amortization
Gross profit
Gross margin
We define FIFO gross margin as FIFO gross profit divided by sales. FIFO gross profit is calculated as sales less merchandise costs, including advertising, warehousing and transportation expenses, but excluding the LIFO charge, rent and depreciation and amortization.
Our LIFO charge was $157 million in 2025, compared to $95 million in 2024. The increase in the LIFO charge was due to higher product cost inflation for 2025, compared to 2024.
Our fuel sales lower our FIFO gross margin rate due to the very low FIFO gross margin rate, as a percentage of sales, of fuel sales compared to non-fuel sales. Excluding the effect of fuel and the Labor Dispute, our FIFO gross margin rate increased 44 basis points in 2025, compared to 2024. This increase resulted primarily from the sale of our Kroger Specialty Pharmacy business, which has a lower gross margin rate, sourcing improvements, lower shrink and lower supply chain costs, partially offset by increased pharmacy sales, which have a lower gross margin rate, and increased price investments. Excluding the effect of fuel, the Labor Dispute and Kroger Specialty Pharmacy, our FIFO gross margin rate increased 14 basis points in 2025, compared to 2024.
Operating, General and Administrative Expenses
OG&A expenses consist primarily of employee-related costs such as wages, healthcare benefit costs, retirement plan costs, utilities, and credit card fees. Rent expense, depreciation and amortization expense, and interest expense are not included in OG&A.
OG&A expenses, as a percentage of sales, were 19.2% in 2025 and 17.3% in 2024. The increase in 2025, compared to 2024, resulted primarily from the effect of decreased fuel sales, which increases our OG&A rate, as a percentage of sales, the sale of our Kroger Specialty Pharmacy business, which has a lower OG&A rate to sales, the 2025 OG&A Adjusted Items, increased healthcare costs and increased multi-employer pension contributions, partially offset by the 2024 OG&A Adjusted Items, decreased incentive plan costs and continued execution of broad-based cost savings initiatives that drive administrative efficiencies, including store productivity.
Our fuel sales lower our OG&A rate, as a percentage of sales, due to the very low OG&A rate, as a percentage of sales, of fuel sales compared to non-fuel sales. Excluding the effect of fuel, the 2025 OG&A Adjusted Items, the Labor Dispute and the 2024 OG&A Adjusted Items, our OG&A rate increased 29 basis points in 2025, compared to 2024. This increase resulted primarily from the sale of our Kroger Specialty Pharmacy business, which has a lower OG&A rate, as a percentage of sales, increased healthcare costs and increased multi-employer pension contributions, partially offset by decreased incentive plan costs and continued execution of broad-based cost savings initiatives that drive administrative efficiencies, including store productivity.
Excluding the effect of fuel, Kroger Specialty Pharmacy, the 2025 OG&A Adjusted Items, the Labor Dispute and the 2024 OG&A Adjusted Items, our OG&A rate increased 7 basis points in 2025, compared to 2024.
Rent Expense
Rent expense remained relatively consistent, as a percentage of sales, for 2025 compared to 2024.
Depreciation and Amortization Expense
Depreciation and amortization expense increased, as a percentage of sales, in 2025, compared to 2024. This increase was primarily due to the sale of our Kroger Specialty Pharmacy business, which has a lower depreciation & amortization rate to sales, partially offset by a reduction in depreciation and amortization expense due to the fulfillment network impairment charge.
Operating Profit and FIFO Operating Profit
Operating profit was $1.9 billion, or 1.28% of sales, for 2025, compared to $3.8 billion, or 2.62% of sales, for 2024. The results for 2025 include $2.5 billion of fulfillment network impairment and related charges. Operating profit, as a percentage of sales, decreased 134 basis points in 2025, compared to 2024, primarily due to increased OG&A expenses, depreciation and amortization expenses and the LIFO charge, as a percentage of sales, partially offset by a higher FIFO gross margin rate.
FIFO operating profit was $2.0 billion, or 1.39% of sales, for 2025, compared to $3.9 billion, or 2.68% of sales, for 2024. The results for 2025 include $2.5 billion of fulfillment network impairment and related charges. FIFO operating profit, as a percentage of sales, excluding the 2025 and 2024 Adjusted Items, increased 14 basis points in 2025, compared to 2024, primarily due to a higher FIFO gross margin rate, partially offset by increased OG&A expenses and depreciation and amortization expenses, as a percentage of sales.
Specific factors contributing to the trends driving operating profit and FIFO operating profit identified above are discussed earlier in this section.
The following table provides a reconciliation of operating profit to FIFO operating profit, and to Adjusted FIFO operating profit, excluding the 2025 and 2024 Adjusted Items:
Operating Profit excluding the Adjusted Items
($ in millions)
Operating profit
LIFO charge
FIFO Operating profit
Adjustment for labor dispute charges
Adjustment for store closures
Adjustment for executive stock compensation for a former executive
Adjustment for merger-related costs (1)
Adjustment for merger-related litigation and settlement charges
Adjustment for property losses
Adjustment for opioid settlement charges and vendor reserves
Adjustment for impairment of intangible assets
Adjustment for severance charge and related benefits
Adjustment for fulfillment network impairment and related charges
Other
2025 and 2024 Adjusted items
Adjusted FIFO operating profit excluding the adjusted items above
Merger-related costs primarily include third-party professional fees and credit facility fees associated with the terminated merger with Albertsons Companies, Inc. (“Albertsons”).
Net Interest Expense
Net interest expense totaled $639 million in 2025, compared to $450 million in 2024. This increase resulted primarily from increased average total outstanding debt in 2025, compared to 2024, from the net proceeds of the senior notes issuance during the third quarter of 2024, and decreased interest income earned due to decreased balances of cash and temporary cash investments in 2025, compared to 2024, primarily due to the $5.0 billion we funded in 2024 under the accelerated share repurchase (“ASR”) transaction and the payment we made in 2024 to redeem $4.7 billion aggregate principal amount of the senior notes that included a special mandatory redemption feature following the termination of the merger with Albertsons.
Income Taxes
Our effective income tax rate was 14.7% in 2025 and 20.0% in 2024. The 2025 tax rate differed from the federal statutory rate due to a tax benefit from share-based payments, recognizing deferred tax assets related to the sale of Vitacost.com and the utilization of tax credits and deductions, partially offset by the effect of state income taxes. The 2024 tax rate differed from the federal statutory rate due to a tax benefit from recognizing deferred tax assets related to the sale of Kroger Specialty Pharmacy, the benefit from share-based payments and the utilization of tax credits, partially offset by the effect of state income taxes.
Net Earnings and Net Earnings Per Diluted Share
Our net earnings are based on the factors discussed in the Results of Operations section.
Net earnings of $1.54 per diluted share for 2025 represented a decrease of 58% compared to net earnings of $3.67 per diluted share for 2024. Excluding the 2025 and 2024 Adjusted Items, adjusted net earnings of $4.85 per diluted share for 2025 represented an increase of 9% compared to adjusted net earnings of $4.47 per diluted share for 2024. The increase in adjusted net earnings per diluted share resulted primarily from increased adjusted FIFO operating profit, excluding fuel, lower income tax expense and lower common shares outstanding, partially offset by increased net interest expense and an increased LIFO charge.
RETURN ON INVESTED CAPITAL
We calculate return on invested capital (“ROIC”) by dividing adjusted ROIC operating profit for the prior four quarters by the average invested capital. Adjusted operating profit for ROIC purposes is calculated by excluding certain items included in operating profit, and adding back our LIFO charge, depreciation and amortization and rent to our U.S. GAAP operating profit of the prior four quarters. Average invested capital is calculated as the sum of (i) the average of our total assets, (ii) the average LIFO reserve and (iii) the average accumulated depreciation and amortization; minus (i) the average taxes receivable, (ii) the average accounts payable, (iii) the average accrued salaries and wages and (iv) the average other current liabilities, excluding accrued income taxes. Averages are calculated for ROIC by adding the beginning balance of the first quarter and the ending balance of the fourth quarter, of the last four quarters, and dividing by two. ROIC is a non-GAAP financial measure of performance. ROIC should not be reviewed in isolation or considered as a substitute for our financial results as reported in accordance with GAAP. ROIC is an important measure used by management to evaluate our investment returns on capital. Management believes ROIC is a useful metric to investors and analysts because it measures how effectively we are deploying our assets.
Although ROIC is a relatively standard financial term, numerous methods exist for calculating a company’s ROIC. As a result, the method used by our management to calculate ROIC may differ from methods other companies use to calculate their ROIC. We urge you to understand the methods used by other companies to calculate their ROIC before comparing our ROIC to that of such other companies.
The following table provides a calculation of ROIC for 2025 and 2024 on a 52 week basis ($ in millions):
Fiscal Year Ended
January 31,
February 1,
Return on Invested Capital
Numerator
Operating profit
LIFO charge
Depreciation and amortization
Rent
Adjustment for labor dispute charges
Adjustment for store closures
Adjustment for executive stock compensation for a former executive
Adjustment for merger-related costs
Adjustment for merger-related litigation and settlement charges
Adjustment for property losses
Adjustment for opioid settlement charges and vendor reserves
Adjustment for impairment of intangible assets
Adjustment for severance charge and related benefits
Adjustment for fulfillment network impairment and related charges
Adjusted ROIC operating profit
Denominator
Average total assets
Average taxes receivable (1)
Average LIFO reserve
Average accumulated depreciation and amortization (2)
Average accounts payable
Average accrued salaries and wages
Average other current liabilities
Average invested capital
Return on Invested Capital
(1) Taxes receivable were $198 as of January 31, 2026, $84 as of February 1, 2025 and $163 as of February 3, 2024.
(2) Accumulated depreciation and amortization includes depreciation for property, plant and equipment and amortization for definite-lived intangible assets.
CRITICAL ACCOUNTING ESTIMATES
We have chosen accounting policies that we believe are appropriate to report accurately and fairly our operating results and financial position, and we apply those accounting policies in a consistent manner. Our significant accounting policies are summarized in Note 1 to the Consolidated Financial Statements.
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosures of contingent assets and liabilities. We base our estimates on historical experience and other factors we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.
We believe the following accounting estimates are the most critical in the preparation of our financial statements because they involve the most difficult, subjective or complex judgments about the effect of matters that are inherently uncertain.
Impairments of Long-Lived Assets
We monitor the carrying value of long-lived assets for potential impairment each quarter based on whether certain triggering events have occurred. These events include current period losses combined with a history of losses or a projection of continuing losses or a significant decrease in the market value of an asset. When a triggering event occurs, an impairment calculation is performed, comparing projected undiscounted future cash flows, utilizing current cash flow information and expected growth rates related to specific asset groups, to the carrying value for those asset groups. If we identify impairment for long-lived assets to be held and used, we compare the assets’ current carrying value to the assets’ fair value. Fair value is based on current market values or discounted future cash flows. We record impairment when the carrying value exceeds fair market value. With respect to owned property and equipment held for disposal, the value of the property and equipment is adjusted to reflect recoverable values based on previous efforts to dispose of similar assets and current economic conditions. Impairment is recognized for the excess of the carrying value over the estimated fair market value, reduced by estimated direct costs of disposal. We recorded asset impairment and related charges totaling $2.7 billion for 2025. This includes store closure costs of $100 million, $77 million net of tax, related to the planned closing of approximately 60 stores, impairment of intangible assets of $50 million, $34 million net of tax, related to classifying a certain subsidiary as held for sale and charges of $2.5 billion, $1.9 billion net of tax, related to our fulfillment network not meeting operational or financial expectations, the planned closing of three automated fulfillment facilities and the cancellation of a planned site (see Note 19 to the Consolidated Financial Statements for additional details). We recorded asset impairments in the normal course of business totaling $98 million in 2024, which includes $25 million, $19 million net of tax, for property losses. Costs to reduce the carrying value of long-lived assets for each of the years presented have been included in the Consolidated Statements of Operations as OG&A expense.
The factors that most significantly affect the impairment calculation are our estimates of future cash flows. Our cash flow projections look several years into the future and include assumptions on variables such as inflation, the economy and competition. Application of alternative assumptions and definitions, such as reviewing long-lived assets for impairment at a different level, could produce significantly different results.
Business Combinations
We account for business combinations using the acquisition method of accounting. All the assets acquired, liabilities assumed and amounts attributable to noncontrolling interests are recorded at their respective fair values at the date of acquisition once we obtain control of an entity. The determination of fair values of identifiable assets and liabilities involves estimates and the use of valuation techniques when market value is not readily available. We use various techniques to determine fair value in such instances, including the income approach. Significant estimates used in determining fair value include, but are not limited to, the amount and timing of future cash flows, growth rates, discount rates and useful lives. The excess of the purchase price over fair values of identifiable assets and liabilities is recorded as goodwill. See Note 2 to the Consolidated Financial Statements for further information about goodwill.
Goodwill
Our goodwill totaled $2.6 billion as of January 31, 2026. We review goodwill for impairment in the fourth quarter of each year and also upon the occurrence of triggering events. We perform reviews of each of our operating divisions and other consolidated entities (collectively, “reporting units”) that have goodwill balances. Generally, fair value is determined using a multiple of earnings, or discounted projected future cash flows, and we compare fair value to the carrying value of a reporting unit for purposes of identifying potential impairment. We base projected future cash flows on management’s knowledge of the current operating environment and expectations for the future. We recognize goodwill impairment for any excess of a reporting unit's carrying value over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.
The annual evaluation of goodwill performed in 2025, 2024 and 2023 did not result in impairment for any of our reporting units. Based on current and future expected cash flows, we believe additional goodwill impairments are not reasonably likely. A 10% reduction in fair value of our reporting units would not indicate a potential for impairment of our goodwill balance.
For additional information relating to our results of the goodwill impairment reviews performed during 2025, 2024 and 2023, see Note 2 to the Consolidated Financial Statements.
The impairment review requires the extensive use of management judgment and financial estimates. Application of alternative estimates and assumptions could produce significantly different results. The cash flow projections embedded in our goodwill impairment reviews can be affected by several factors such as inflation, business valuations in the market, the economy, competition and our ability to successfully integrate recently acquired businesses.
Multi-Employer Pension Plans
We contribute to various multi-employer pension plans based on obligations arising from collective bargaining agreements. These multi-employer pension plans provide retirement benefits to participants based on their service to contributing employers. The benefits are paid from assets held in trust for that purpose. Trustees are appointed in equal number by employers and unions. The trustees typically are responsible for determining the level of benefits to be provided to participants as well as for such matters as the investment of the assets and the administration of the plans.
We recognize expense in connection with these plans as contributions are funded or when commitments are probable and reasonably estimable, in accordance with GAAP. We made cash contributions to these plans of $496 million in 2025, $398 million in 2024 and $635 million in 2023. The increase in 2025, compared to 2024, is due to an increase in required contributions to the UFCW Consolidated Pension Plan, primarily due to the exhaustion of prefunding credits that originated from incremental contributions we made to this plan in prior years. The decrease in 2024, compared to 2023, is due to the fulfillment of contractually obligated payments related to our commitments established when restructuring the UFCW International Union-Industry Variable Annuity Pension Plan agreement.
We continue to evaluate and address our potential exposure to under-funded multi-employer pension plans as it relates to our associates who are beneficiaries of these plans. These under-fundings are not our liability. When an opportunity arises that is economically feasible and beneficial to us and our associates, we may negotiate the restructuring of under-funded multi-employer pension plan obligations to help stabilize associates’ future benefits and become the fiduciary of the assets of the restructured multi-employer pension plan. The commitments from these restructurings do not change our debt profile as it relates to our credit rating since these off-balance sheet commitments are typically considered in our investment grade debt rating. We are currently designated as the named fiduciary of the UFCW Consolidated Pension Plan and the International Brotherhood of Teamsters (“IBT”) Consolidated Pension Fund and have sole investment authority over these assets. As we continue to work to find solutions to under-funded multi-employer pension plans, it is possible we could incur withdrawal liabilities for certain funds.
Based on the most recent information available to us, we believe the present value of actuarially accrued liabilities in most of these multi-employer plans exceeds the value of the assets held in trust to pay benefits, and we expect that our contributions to most of these funds will increase over the next few years . We have attempted to estimate the amount by which these liabilities exceed the assets, (i.e., the amount of underfunding), as of December 31, 2025. Because we are only one of a number of employers contributing to these plans, we also have attempted to estimate the ratio of our contributions to the total of all contributions to these plans in a year as a way of assessing our “share” of the underfunding. Nonetheless, the underfunding is not a direct obligation or liability of ours or of any employer.
As of December 31, 2025, we estimate our share of the underfunding of multi-employer pension plans to which we contribute was approximately $1.2 billion, $942 million net of tax. As of December 31, 2024, we estimate our share of the underfunding of multi-employer pension plans to which we contribute was approximately $1.9 billion, $1.4 billion net of tax. This represents a decrease in the estimated amount of underfunding of approximately $630 million, $482 million net of tax, as of December 31, 2025. The decrease in the amount of underfunding is primarily attributable to higher expected returns on assets in the funds as well as the receipt of American Rescue Plan Act (“ARP Act”) funding. Our estimate is based on the most current information available to us including actuarial evaluations and other data (that include the estimates of others), and such information may be outdated or otherwise unreliable.
We have made and disclosed this estimate not because this underfunding is a direct liability of ours. Rather, we believe the underfunding is likely to have important consequences. In the event we were to exit certain markets or otherwise cease making contributions to these plans, we could trigger a substantial withdrawal liability. Any adjustment for withdrawal liability will be recorded when it is probable that a liability exists and can be reasonably estimated, in accordance with GAAP.
The amount of underfunding described above is an estimate and could change based on contract negotiations, returns on the assets held in the multi-employer pension plans, benefit payments or future restructuring agreements. The amount could decline, and our future expense would be favorably affected, if the values of the assets held in the trust significantly increase or if further changes occur through collective bargaining, trustee action or favorable legislation. On the other hand, our share of the underfunding could increase, and our future expense could be adversely affected if the asset values decline, if employers currently contributing to these funds cease participation or if changes occur through collective bargaining, trustee action or adverse legislation. We continue to evaluate our potential exposure to under-funded multi-employer pension plans. Although these liabilities are not a direct obligation or liability of ours, any commitments to fund certain multi-employer pension plans will be expensed when our commitment is probable and an estimate can be made.
Under the ARP Act, eligible multi-employer plans can apply to receive a cash payment in the amount needed to pay pension benefits through the plan year ending 2051. At the end of 2025, we expect a certain multi-employer pension plan in which we participate, for which our estimated share of underfunding is approximately $38 million, $29 million net of tax, to receive funding in 2026, which may reduce a portion of our share of unfunded multi-employer pension plan liabilities.
See Note 15 to the Consolidated Financial Statements for more information relating to our participation in these multi-employer pension plans.
NEW ACCOUNTING STANDARDS
Refer to Note 20 and Note 21 to the Consolidated Financial Statements for recently adopted accounting standards and recently issued accounting standards not yet adopted as of January 31, 2026.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow Information
The following table summarizes our net (decrease) increase in cash and temporary cash investments for 2025 and 2024:
Fiscal Year
Net cash provided by (used by)
Operating activities
Investing activities
Financing activities
Net (decrease) increase in cash and temporary cash investments
Net cash provided by operating activities
We generated $7.3 billion of cash from operations in 2025, compared to $5.8 billion in 2024. The change in net earnings including noncontrolling interests is discussed in the Results of Operations section. Other significant items affecting net cash provided by operating activities include the following:
The fulfillment network impairment and related charges as a result of certain facility closures and the automated fulfillment network not meeting operational or financial expectations;
A decrease in deferred income taxes due to the fulfillment network impairment and related charges; and
Cash flows for accounts receivable were more favorable in 2025, compared to 2024, primarily due to a decrease in pharmacy receivables at the end of 2025, compared to 2024, driven by timing of cash receipts.
Cash paid for net interest increased in 2025, compared to 2024, primarily due to increased interest payments related to the $5.8 billion aggregate principal amount of senior notes issued in the third quarter of 2024 and not redeemed in the fourth quarter of 2024.
Net cash used by investing activities
Investing activities used cash of $3.9 billion in 2025, compared to $3.2 billion in 2024. The amount of cash used by investing activities increased in 2025, compared to 2024, primarily due to a decrease in net proceeds from the sale of businesses due to the sale of our Kroger Specialty Pharmacy business in 2024, a decrease in proceeds from the sale of assets due to the sale of an equity investment in 2024 and the letter of credit drawdown by Ocado International Holdings Limited and Ocado Group plc (“Ocado”) in the second quarter of 2025 under the Amended and Restated Partnership Framework Agreement, partially offset by decreased payments for property and equipment, including payments for lease buyouts.
Net cash used by financing activities
Cash used by financing activities was $4.0 billion in 2025, compared to $490 million in 2024. The amount of cash used by financing activities increased in 2025, compared to 2024, primarily due to decreased proceeds from the issuance of long-term debt, partially offset by decreased payments on long-term debt including obligations under finance leases, decreased treasury stock purchases and decreased unsettled accelerated share repurchases.
Capital Investments
Capital investments, including changes in construction-in-progress payables and excluding the purchase of leased facilities, totaled $3.9 billion in 2025 and $3.6 billion in 2024. Capital investments for the purchase of leased facilities totaled $33 million in 2025 and $51 million in 2024. Our capital priorities align directly with our value creation model and our target to consistently grow net earnings. We increased our capital investments in 2025, compared to 2024, reflecting increased capital spending on major storing projects for 2025 as well as projects that will be completed in future years. Our capital program includes store construction projects, initiatives to enhance the customer experience in stores, improve our process efficiency and enhance our digital capabilities through technology developments. These investments are expected to drive sales growth, expand our customer base in key markets, and improve operating efficiency by removing cost and waste from our business.
The table below shows our supermarket storing activity and our total supermarket square footage for 2025, 2024 and 2023:
Supermarket Storing Activity
Beginning of year
Opened
Opened (relocation)
Closed (operational)
Closed (relocation)
End of year
Total expansions (1)
Total remodels (2)
Total supermarket square footage (in millions)
(1) We define an expansion as a project that expands the square footage of a store by at least 5,000 square feet or 15,000 square feet for stores greater than 95,000 square feet prior to the expansion.
(2) We define a remodel as a project that is greater than or equal to a cost of $8 per square foot.
Debt Management
Total debt, including both the current and long-term portions of obligations under finance leases, decreased $339 million to $17.6 billion as of year-end 2025, compared to year-end 2024. This decrease was primarily due to a reduction in obligations under finance leases as a result of the cash termination payment to Ocado.
Common Share Repurchase Programs
On December 23, 2025, we announced that our Board of Directors approved a $2.0 billion share repurchase program to reacquire shares via open market purchase or privately negotiated transactions, including ASR transactions, block trades, or pursuant to trades intending to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “December 2025 Repurchase Program”).
On December 11, 2024, we announced that our Board of Directors approved a $7.5 billion share repurchase program to reacquire shares via open market purchase or privately negotiated transactions, including ASR transactions, block trades, or pursuant to trades intending to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “December 2024 Repurchase Program”).
On December 6, 1999, our Board of Directors approved a share repurchase program to repurchase common shares to reduce dilution resulting from our employee stock option and long-term incentive plans, under which repurchases are limited to proceeds received from exercises of stock options and the tax benefits associated therewith (the “1999 Repurchase Program”). The 1999 Repurchase Program is solely funded by proceeds from stock option exercises, and the tax benefit from these exercises.
On December 19, 2024, we entered into an ASR agreement with two financial institutions to reacquire, in aggregate, $5.0 billion in shares of Kroger common stock. During 2024, we funded $5.0 billion and received a $4.0 billion initial delivery of approximately 65.6 million Kroger common shares at an average price of $61.54 per share, which includes excise tax on the shares repurchased. Final delivery under the ASR agreement occurred during the third quarter of 2025. In total, we invested $5.0 billion to repurchase 75.6 million shares of Kroger common stock at an average price of $66.68 per share, which includes excise tax on the shares repurchased. The ASR agreement was completed under the December 2024 Repurchase Program.
During 2025, we invested $2.7 billion to repurchase 41.8 million shares of Kroger common stock at an average price of $65.21 per share, which includes excise tax on the shares repurchased. These shares were reacquired under the December 2024 Repurchase Program and the 1999 Repurchase Program. In addition, the final delivery under the ASR agreement occurred during the third quarter of 2025, which included the settlement of 10.0 million shares of Kroger common stock. During 2024, we invested $4.2 billion to repurchase 68.4 million shares of Kroger common stock at an average price of $61.31 per share, which includes excise tax on the shares repurchased. These shares were reacquired under the December 2024 Repurchase Program and the 1999 Repurchase Program. During 2023, we invested $62 million to repurchase 1.3 million shares of Kroger common stock at an average price of $46.98 per share. These shares were reacquired under the 1999 Repurchase Program.
Amounts available under the 1999 Repurchase Program are dependent upon option exercise activity. The December 2025 Repurchase Program, the December 2024 Repurchase Program, and the 1999 Repurchase Program do not have any expiration dates, but may be suspended or terminated by our Board of Directors at any time.
Dividends
The following table provides dividend information for 2025 and 2024 ($ in millions, except per share amounts):
Cash dividends paid
Cash dividends paid per common share
Liquidity Needs
We held cash and temporary cash investments of $3.3 billion, as of the end of 2025. We actively manage our cash and temporary cash investments in order to internally fund operating activities, support and invest in our core businesses, make scheduled interest and principal payments on our borrowings and return cash to shareholders through cash dividend payments and share repurchases. Our current levels of cash, borrowing capacity and balance sheet leverage provide us with the operational flexibility to adjust to changes in economic and market conditions. We remain committed to our dividend, and growing our dividend over time, subject to Board approval, as well as our share repurchase programs and we will evaluate the optimal use of any excess free cash flow, consistent with our capital allocation strategy.
The table below summarizes our short-term and long-term material cash requirements, based on year of maturity or settlement, as of January 31, 2026 (in millions of dollars):
Thereafter
Total
Contractual Obligations (1)(2)
Long-term debt (3)
Interest on long-term debt (4)
Finance lease obligations
Operating lease obligations
Self-insurance liability (5)
Construction commitments (6)
Opioid settlement payments (7)
Purchase obligations (8)
Total
The contractual obligations table excludes funding of pension and other postretirement benefit obligations, which totaled approximately $35 million in 2025. For additional information about these obligations, see Note 14 to the Consolidated Financial Statements. This table also excludes contributions under various multi-employer pension plans, which totaled $496 million in 2025. For additional information about these multi-employer pension plans, see Note 15 to the Consolidated Financial Statements.
The liability related to unrecognized tax benefits has been excluded from the contractual obligations table because a reasonable estimate of the timing of future tax settlements cannot be determined.
As of January 31, 2026, we had no outstanding commercial paper and no borrowings under our credit facility.
Amounts include contractual interest payments using the interest rate as of January 31, 2026 and stated fixed and swapped interest rates, if applicable, for all other debt instruments.
The amounts include self-insurance liabilities related to workers’ compensation claims and general liability claims. Workers’ compensation claims have been stated on a present value basis.
Amounts include funds owed to third parties for projects currently under construction. These amounts are reflected in “Accounts payable” in our Consolidated Balance Sheets.
Amounts include scheduled opioid settlement commitments. For additional information about our opioid settlement charges, see Note 12 to the Consolidated Financial Statements.
Amounts include commitments, many of which are short-term in nature, to be utilized in the normal course of business, such as several contracts to purchase raw materials utilized in our food production plants and several contracts to purchase energy to be used in our stores and food production plants. Our obligations also include management fees for facilities operated by third parties and outside service contracts. Any upfront vendor allowances or incentives associated with outstanding purchase commitments are recorded as either current or long-term liabilities in our Consolidated Balance Sheets. We included our future commitments for customer fulfillment centers for which we have placed an order as of January 31, 2026. We did not include our commitments associated with additional customer fulfillment centers that have not yet been ordered.
We expect to meet our short-term and long-term liquidity needs with cash and temporary cash investments on hand as of January 31, 2026, cash flows from our operating activities and other sources of liquidity, including borrowings under our commercial paper program and revolving credit facility. Our short-term and long-term liquidity needs include anticipated requirements for working capital to maintain our operations, pension plan commitments, interest payments and scheduled principal payments of debt and commercial paper, servicing our lease obligations, self-insurance liabilities, capital investments, scheduled opioid settlement payments and other purchase obligations. We may also require additional capital in the future to fund organic growth opportunities, increase capacity of our Delivery solutions, joint ventures or other business partnerships, property development, acquisitions, dividends and share repurchases. In addition, we generally operate with a working capital deficit due to our efficient use of cash in funding operations and because we have consistent access to the capital markets. We believe we have adequate coverage of our debt covenants to continue to maintain our current investment grade debt ratings and to respond effectively to competitive conditions .
For additional information about our debt activity in 2025, see Note 5 to the Consolidated Financial Statements.
Factors Affecting Liquidity
We can currently borrow on a daily basis approximately $2.75 billion under our commercial paper program. At January 31, 2026, we had no outstanding commercial paper. Commercial paper borrowings are backed by our credit facility and reduce the amount we can borrow under the credit facility. If our short-term credit ratings fall, the ability to borrow under our current commercial paper program could be adversely affected for a period of time and increase our interest cost on daily borrowings under our commercial paper program. This could require us to borrow additional funds under the credit facility, under which we believe we have sufficient capacity. However, in the event of a ratings decline, we do not anticipate that our borrowing capacity under our commercial paper program would be any lower than $500 million on a daily basis. Factors that could affect our credit rating include changes in our operating performance and financial position, the state of the economy, conditions in the food retail industry and changes in our business model. Further information on the risks and uncertainties that can affect our business can be found in the “Risk Factors” section set forth in Item 1A of Part I of this Annual Report on Form 10-K. Although our ability to borrow under the credit facility is not affected by our credit rating, the interest cost and applicable margin on borrowings under the credit facility could be affected by a downgrade in our Public Debt Rating. “Public Debt Rating” means, as of any date, the rating that has been most recently announced by either S&P or Moody’s, as the case may be, for any class of non-credit enhanced long-term senior unsecured debt issued by Kroger. As of March 26, 2026, we had no commercial paper borrowings outstanding.
Our credit facility requires the maintenance of a Leverage Ratio (our “financial covenant”). A failure to maintain our financial covenant would impair our ability to borrow under the credit facility. This financial covenant is described below:
Our Leverage Ratio (the ratio of Net Debt to Adjusted EBITDA, as defined in the credit facility) was 1.54 to 1 as of January 31, 2026. If this ratio were to exceed 3.50 to 1, we would be in default of our revolving credit facility and our ability to borrow under the facility would be impaired.
Our credit facility is more fully described in Note 5 to the Consolidated Financial Statements. We were in compliance with our financial covenant at January 31, 2026.
As of January 31, 2026, we maintained a $2.75 billion, unsecured revolving credit facility that, unless extended, terminates on September 13, 2029. Outstanding borrowings under the credit facility, commercial paper borrowings, and some outstanding letters of credit reduce funds available under the credit facility. As of January 31, 2026, we had no outstanding commercial paper and no borrowings under our revolving credit facility. The outstanding letters of credit that reduce funds available under our credit facility totaled $3 million as of January 31, 2026 .
We maintain surety bonds related primarily to our self-insured workers’ compensation claims. These bonds are required by most states in which we are self-insured for workers’ compensation and are placed with predominately third-party insurance providers to insure payment of our obligations in the event we are unable to meet our claim payment obligations up to our self-insured retention levels. These bonds do not represent liabilities of ours, as we already have reserves on our books for the claims costs. Market changes may make the surety bonds more costly and, in some instances, availability of these bonds may become more limited, which could affect our costs of, or access to, such bonds. Although we do not believe increased costs or decreased availability would significantly affect our ability to access these surety bonds, if this does become an issue, we would issue letters of credit, in states where allowed, to meet the state bonding requirements. This could increase our cost or decrease the funds available under our credit facility if the letters of credit were issued against our credit facility. We had $617 million of outstanding surety bonds as of January 31, 2026. These surety bonds expire during fiscal year 2026 and are expected to be renewed.
We have standby letters of credit outstanding as part of our insurance program and for other business purposes. We had $29 million of outstanding standby letters of credit as of January 31, 2026. These standby letters of credit expire during fiscal year 2026 or early fiscal year 2027 and most are expected to be renewed. The letters of credit for our insurance program collateralize obligations to our insurance carriers in connection with the settlement of potential claims. Letters of credit do not represent liabilities of ours and are not reflected in our Consolidated Balance Sheets.
We also are contingently liable for leases that have been assigned to various third parties in connection with facility closings and dispositions. We could be required to satisfy obligations under the leases if any of the assignees are unable to fulfill their lease obligations. Due to the wide distribution of our assignments among third parties, and various other remedies available to us, we believe the likelihood that we will be required to assume a material amount of these obligations is remote. We have agreed to indemnify certain third-party logistics operators for certain expenses, including multi-employer pension plan obligations and withdrawal liabilities.
In addition to the above, we enter into various indemnification agreements and take on indemnification obligations in the ordinary course of business. Such arrangements include indemnities against third-party claims arising out of agreements to provide services to us; indemnities related to the sale of our securities; indemnities of directors, officers and employees in connection with the performance of their work; and indemnities of individuals serving as fiduciaries on benefit plans. While our aggregate indemnification obligation could result in a material liability, we are not aware of any current matter that could result in a material liability.
