Kroger Q2: Flat Comps, Strong Media, But WAIT Stance Unchanged

What happened

Kroger reported Q2 2026 results with identical sales ex-fuel up only 0.2%, while adjusted eCommerce sales surged 20% and Kroger Precision Marketing profit grew 24%. Operating profit was $971 million, with adjusted FIFO operating profit of $1.076 billion and adjusted EPS of $1.09, exceeding the prior-year quarter. The company also updated its 2026 guidance, though details were not provided in the release. This quarter underscores a bifurcation: the core grocery business is barely growing against stiff competition, but high-margin alternative profit streams continue to expand rapidly. The results are in line with the narrative of a cash-generative grocer stuck in a low-growth industry, but they do little to address the stock's rich valuation.

Implication

Investors should view the Q2 print as a microcosm of the broader thesis: strong digital and media growth cannot yet offset the stagnation in traditional grocery sales. The adjustment from reported to adjusted operating profit ($971M to $1,076M) suggests ongoing one-time costs, and identical sales ex-fuel of just 0.2% indicates Kroger is losing share or facing heavy price competition. The company's valuation, at roughly 52x trailing EPS and 87% above a conservative DCF, leaves little room for execution missteps, especially with leverage at 2.76x net debt/EBITDA. While the 20% eCommerce growth and 24% KPM profit growth are encouraging, they still represent a small fraction of total operating profit, and their sustainability in a competitive market is uncertain. Until there is evidence of sustained improvement in core comps and the stock price reflects a larger margin of safety, we maintain our WAIT rating.

Thesis delta

The new results do not materially alter our investment thesis. The core grocery business remains stagnant with 0.2% identical sales growth, but the alternative profit streams continue to deliver strong growth, supporting our view that Kroger's moat is stable but not expanding. Given the unchanged valuation premium and legal overhangs, the WAIT stance remains appropriate; only a significant pullback in price or a clear acceleration in core comps would prompt a change.