Kroger’s identical-store sales growth nearly stalled in the second quarter of fiscal 2026, rising just 0.2% after accounting for fuel, as a cyclospora outbreak and shifting consumer behavior weighed on fresh produce sales. The grocer’s total revenue still climbed 2% year-over-year to $34.6 billion, but executives attributed the slowdown to multiple factors, including reduced spending on fresh food stemming from the public health crisis. The company’s operating profit rose by more than 12% to $971 million, demonstrating its ability to maintain profitability even as sales growth weakened.
Cyclospora outbreak cuts into produce sales
CEO Greg Foran said shoppers began avoiding produce late in the quarter after a cyclospora outbreak triggered widespread concern. The outbreak alone shaved roughly 0.3 percentage points off identical sales, he noted. While no specific items were confirmed contaminated, consumers reacted by steering clear of fresh fruits and vegetables broadly. Foran emphasized that the public health crisis didn’t take hold until the quarter was well underway, yet shoppers still avoided types of produce that were not contaminated by cyclospora, reflecting broader caution.
Kroger’s CFO, David Kennerley, confirmed the impact during an earnings call. The company now expects full-year identical sales growth to range between 0.2% and 0.8%, down from its prior forecast of 1% to 2%. Kennerley cited consumer caution about buying produce as the primary reason for lowering guidance, suggesting the cyclospora crisis may have lasting effects on shopping behavior.
Other categories performed better. Sales of natural foods, meat, seafood, and baked goods all rose, while declining egg prices dragged down results by about 30 basis points. The strength in these categories highlights how discretionary spending on fresh produce contrasts with more stable demand for essential proteins and staples. Digital sales, however, remained a standout, with adjusted e-commerce revenue up 20% and retail media advertising up 24%. Foran noted that the company’s digital operations turned a profit for the second quarter in a row, reinforcing its shift toward online growth as a key driver of future revenue.
Regulatory and pricing pressures mount
The Inflation Reduction Act also took a toll, cutting pharmacy sales growth by 140 basis points in Q2. Kroger expects the impact to worsen in the second half of the year as more drugs come under Medicare price negotiations. The law’s effects were larger in Q2 than in the first quarter, and the company anticipates further declines as additional medications fall under negotiation. Generic medication adoption further reduced sales by over 0.5 percentage points, reflecting broader industry trends toward lower-cost alternatives.
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Foran acknowledged the challenges and said during the earnings call, “Despite these industry-wide challenges, our teams are executing our plan: keep the customer at the center, move with more speed, be great item merchants.” The company’s commitment to operational efficiency—such as “chasing every dollar we can save”—helped sustain profitability even as sales growth slowed. The quarter, which ended August 15, saw Kroger handle these obstacles while maintaining disciplined cost management.
Shoppers aren’t just reacting to outbreaks, they’re also tightening budgets. Fresh produce, already a discretionary category, has seen demand soften as consumers prioritize essentials. The broader economic environment, combined with the cyclospora crisis, has accelerated this shift, forcing Kroger to adapt strategies like expanding digital sales and retail media to offset declines in core grocery growth. These adjustments reflect a deliberate pivot toward higher-margin and more resilient revenue streams.
Profit holds steady despite sales slowdown
Kroger’s stock rose about 2% on the earnings report, but shares remain down 7% since the start of the year and off 20% over the past six months. The company’s ability to maintain profitability, even as sales growth weakens, points to strong operational controls. The cyclospora outbreak and regulatory pressures suggest further headwinds ahead, particularly if consumer caution persists or Medicare negotiations intensify.
Foran’s comment about “chasing every dollar” signals a shift toward efficiency over volume. With produce sales under pressure and pharmacy margins squeezed, Kroger’s path forward hinges on digital growth and cost management, areas where it has already shown progress. The company’s resilience in maintaining operating profit growth despite sales challenges shows its ability to adapt, though execution in digital and retail media will be critical to sustaining momentum.
