KR 10-K & 10-Q changes, risk factors and insider trading

The operating environment for the food retailing industry continues to be characterized by the proliferation of local, regional, and national retailers, including both retail and digital formats, and intense and ever-increasing competition ranging from online retailers, mass merchant,merchants, club stores, regional chains, deep discounters, dollar stores, and ethnic, specialty and natural food stores. With the proliferation of grocery delivery – both by retailers and third-party delivery service providers – customers have ana even widerwide range of retailers from which to choose. Customers continue to expect a great shopping experience both in-store and online. The industry continues to be shaped by e-commerce, cooking at home and prepared foods to go and other customer needs and preferences. Customers want to be able to shop on their own terms with zero compromise whether at brick and mortar stores or online, pick-up or delivery, all depending on their particular trip needs and other factors. If we do not appropriately or accurately anticipate customer preferences or fail to quickly adapt to these ever-changing preferences, our sales and profitability could be adversely affected. If we fail to meet the evolving needs of our customers, our ability to compete and our financial condition, results of operations or cash flows could be adversely affected. In addition, if we are not able to execute our plan to significantly increase our investment in major store projects, including new stores to accelerate sales growth and improve share, while supporting our long-term growth model, our financial condition, results of operations or cash flows could be adversely affected.

We are continuing to enhance the customerour connection with our customers with investments in our fourtop strategic pillarspriorities – Seamless,Fresh, Personalization,Our Fresh,Brands, Personalization and Our Brands.eCommerce. Each of these strategies is designed to better serve our customers and to generate customer loyalty and sustainable growth momentum. We believe ourthat planscontinuing to continuefocus to improveon these fourtop strategic pillarspriorities will enable us to meet the wide-ranging needs and expectations of our customers. If we are unable to continue to enhance the foregoing key elements of our connection with customers, or theyif we fail to strengthen customer loyalty, our ability to compete and our financial condition, results of operations or cash flows could be adversely affected. Our ecosystem monetizes the traffic and data insights generated by our retail grocery business to create fast- growing,fast-growing, asset-light and margin-rich revenue streams. Growth in loyal households, customer traffic and digitally engaged customers allowallows us to grow profits and power the flywheel in our model. We may be unsuccessful in implementing our alternative profit strategy, which could adversely affect our business growth and our financial condition, results of operations or cash flows. The nature and extent to which our competitors respond to the evolving and competitive industry by developing and implementing their competitive strategies could also adversely affect our profitability.

In addition, evolving customer preferences and the advancement of online, delivery, ship to home and mobile channels in our industry increasehave theincreased competitivecompetition in our environment. We must anticipate and meet these evolving customer preferences and continue to implement technology, software and processes to be able to conveniently and cost-effectively fulfill customer orders. Providing flexible fulfillment options and implementing new technology is complex and may not meet customer preferences. If we are not successful in reducing or offsetting the cost of fulfilling orders outside of our in-store channel withthrough efficiencies, cost-savings, expense reductions, or alternative revenues, our financial condition, results of operations or cash flows could be adversely affected.

In addition, if we do not successfully develop and maintain a relevant digital experience for our customers, our business, financial condition, results of operations or cash flows could be adversely affected. Digital retailing is rapidly evolving, and we must keep pace with new developments by our competitorscompetitors, as well as the evolvingchanging needs and preferences of our customers. We must compete by offering a convenient shopping experience for our customerscustomers, regardless of how they choose to shop with us, and by investing in providing and maintaining relevant customer-facing apps and interfaces that have the features customers want that are also reliable and easy to use. The future success of the digitaleCommerce business will also depend on the efficiency and cost effectiveness of fulfilling orders across our modalities, whether in store, pickup or delivery through third parties or our customer fulfillment centers. We have closed certain customer fulfillment centers because they have not been meeting operational and financial expectations. If we do not develop and maintain our eCommerce plan and profitability improvements of our customer fulfillment centers, our financial condition, results of operations or cash flows could be adversely affected.

Customers count on Kroger to provide them with safe food andfood, drugs and other merchandise. Concerns regarding the safety of the products that we sell could cause shoppers to avoid purchasing certain products from us,us or to seek alternative sources of supplysupply, even if the basis for the concern is outside of our control. Any lost confidence on the part of our customers would be difficult and costly to reestablish. We could be adversely affected by personal injury or product liability claims, product recalls, or other health and safety issues, which occur from time to time. If we sell products that cause illness or injury to customers, resulting from product contamination or spoilage, the presence of certain substances, or damage caused in handling, storage or transportation, we could be exposed to claims or litigation. Any issue regarding the safety of items, whether Our Brands items manufactured by us or for us or CPGconsumer packaged goods products we sell, regardless of the cause, could have a substantial and adverse effect on our reputation, financial condition, results of operations or cash flows.

NearlyMore than two-thirds of our associates are covered by collective bargaining agreements with unions, and our relationship with those unions, including any work stoppage affecting a substantial number of locations, could have a material adverse effect on our financial condition, results of operations or cash flows. We are a party to approximately 350 collective bargaining agreements. Upon the expiration of our collective bargaining agreements, work stoppages by the affected workers could occur (and have occurred in the past) if we are unable to negotiate new contracts with the applicable labor unions.union. In addition, changes to national labor policy could affect labor relations with our associates and relationships with unions. Further, if we are unable to control health care, pension and wage costs, or if we have insufficient operational flexibility under our collective bargaining agreements, we may experience increased operating costs and an adverse effect on our financial condition, results of operations or cash flows.

We have committed to paying fair wages and providing the benefits that were collectively bargained with the United Food and Commercial Workers (“UFCW”) and other labor unions representing our associates. Our ability to control labor and benefit costs is subject to numerous internal and external factors, including regulatory changes, wage rates, and healthcare and other insurance costs. Changes to wage regulations, including further increases in the minimum wage or ordinances related to pay or working conditions enacted by local governments, could have an effect on our future financial condition, results of operations or cash flows. Our ability to meet our labor needs, while controlling wages and other costs, is subject to numerous external factors, including the available qualified workforce in each area where we are located, unemployment levels within those areas, wage rates, and changes in employment and labor laws.

Our continued success depends on the ongoing contributions of our associates, including members of our senior management, key associates and executives. While we have development and succession plans in place for our key associates and executives, these plans do not guarantee that the services of our key associates and executives will continue to be available to us.us Foror example,the wesuccessful recentlytransition experiencedof severalresponsibilities keyfollowing executivedepartures or role changes. It may be difficult to replace key executives because of the limited number of qualified individuals with the breadth of skills and experience necessary for our business. We must recruit, hire, develop and retain qualified associates with an increasingly large range of skills to meet the needs of our evolving and complex business. We compete with other retail and non- retailnon-retail businesses for these associates and invest significant resources in training and motivating them. Competition among potential employers has resulted, and may in the future result, in increased associate costs and has from time to time affected our ability to recruit and retain associates. If we are unable to attract, develop, retain and effectively manage the development and succession plans for our associates, including members of our senior management, key associates and executives, it could have a material adverse effect on our business, financial condition, results of operations or cash flows.

Our business is increasingly dependent on information technology systems that are complex and vital to continuing operations, resulting in an expansion of our technological presence and corresponding risk exposure.complex. If we were to experience difficulties maintaining or operating existing systems or implementing new systems, we could incur significant losses due to disruptions in our operations. As we modernize legacy systems, if we are unable to successfully implement those systems in a coordinated manner across internal and external stakeholders, we could be subject to business interruption or reputation risk with our customers, suppliers or associates.

To effectively compete, we may need to increase investments to innovatein new capabilities and processes incorporating AIAI, as well as to develop appropriate protections, safeguards, and policies for handling data and mitigating information security, data privacy and legal risks. Furthermore, the regulatory and legal landscape regarding AI is rapidly evolving and the Company may be challenged to timely comply in a cost-effective manner.

Through our sales and marketing activities, we collect and store some personal information that our customers provide to us. We also gather and retain information about our associates in the normal course of business. Under certain circumstances, we may share information with third parties that assist us in conducting our business, as required by law, or otherwise in accordance with our privacy policy. Failure to protect this information, or failure to comply with applicable data protection and privacy laws, could result in legal, regulatory, reputational, and financial harm.

Our technology systems have been, and may be in the future, disrupted from circumstances beyond our control, as we regularly defend against and respond to data security related attacks. Cyber-attackers have targeted and accessed, and may in the future again target and, if successful, access information stored in our or certain third parties’ systems in order to misappropriate confidential customer or business information. The rapid evolution and increased adoption of AI and related technologies may also intensify the risk that our technology systems are targeted. Due to ongoing geopolitical conflicts, there is an increased possibility of cyberattacks that could either directly or indirectly affect our operations. Although we have implemented procedures to protect our information, and require third parties we interact with to do the same, we cannot be certain that our security systems will successfully defend against, or be able to effectively respond to, rapidly evolving, increasingly sophisticated cyber-attackscyberattacks as they become more difficult to detect and defend against.defend. Further, a Kroger associate, a contractor or other third party with whom we interact may in the future circumvent our security measures in order to obtain information or may inadvertently cause a breach involving information. In addition, hardware, software or applications we may use may have inherent defects, vulnerabilities, or could be inadvertently or intentionally applied or used in a way that could compromise our information security.

Our cybersecurity program, continued investment in our information technology systems, and our processes to evaluate and select vendors with reasonable information security controls may not effectively insulate us from potential attacks, data breaches or disruptions to our business operations, which could result in a loss of customers or business information, negative publicity, damage to our reputation, and exposure to claims from customers, financial institutions, regulatory authorities, payment card associations, associates and other persons. Any such events could have an adverse effect on our business, financial condition, results of operations or cash flows and may not be covered by our insurance. In addition, compliance with rapidly changing privacy and information security laws and standards may result in significant expense due to increased investment in technology and the development of new operational processes and may require us to devote significant management resources to address these issues. The costs of attempting to protect against the foregoing risks and the costs of responding to cyber-attackscyberattacks are significant. Following a cyber-attack, our and/or our third parties’cyberattack, remediation efforts may not be successful, and a cyber-attackcyberattack could result in interruptions, delays or cessation of service, and loss of existing or potential customers. In addition, breaches of our and/or our vendors’ security measures and the unauthorized dissemination of sensitive personal information or confidential information about us or our customers could expose our customers’ private information and our customers to the risk of financial or medical identity theft, or expose us or other third parties to a risk of loss or misuse of this information, and result in investigations, regulatory enforcement actions, material fines and penalties, loss of customers and business relationships, litigation or other actions which could have a material adverse effect on our brands, reputation, business, financial condition, results of operations or cash flows.

Data governance failures can adversely affect our reputation and business. OurA significant portion of our business depends on our customers’ willingness to entrust us with their personal information. Events that adversely affect that trust, including inadequate disclosure to our customers of our uses of their information, failures to honor new and evolving data privacy rights,rights and laws, failing to keep our information technology systems and our customers’ sensitive information secure from significant attack, theft, damage, loss or unauthorized disclosure or access, whether as a result of our action or inaction (including human error) or that of our business associates, vendors or other third parties, could adversely affect our brand and reputation and operating results and also could expose and/or has exposed us to mandatory disclosure to the media, litigation (including class action litigation), governmental investigations and enforcement proceedings, material fines, penalties and/or remediation costs, and compensatory, special, punitive and statutory damages, consent orders, and/or injunctive relief, any of which could adversely affect our businesses, financial condition, results of operations or cash flows. Large scale data breaches at other entities, including supply chain related security vulnerabilities, increase the challenge we face in maintaining the security of our information technology systems and proprietary information and of our customers’ information. There can be no assurance that such failures will not occur, or if any do occur, that we will detect them or that they can be sufficiently remediated.

The use of data by our business and our business associates is highly regulated. Privacy and information-security laws and regulations change, and compliance with them may result in cost increases due to, among other things, systems changes and the development of new processes. If we, our third-party service providers, or those with whom we share information fail to comply with laws and regulations, or self-regulatory regimes, that apply to all or parts of our business, such as section 5 of the FTC Act, the California Consumer Privacy Act (CCPA),Act, the Health Insurance Portability and Accountability Act (HIPAA),Act, or applicable international laws such as the EU General Data Protection Regulation (GDPR),Regulation, our reputation could be damaged, possibly resulting in lost business, and we could be subjected to additional legal risk or financial losses as a result of non-compliance.

We accept payments using a variety of methods, including cash and checks, select credit and debit cards, and Kroger Pay, a mobile payment solution. As we offer new payment options to our customers, we may be subject to additional rules, regulations, compliance requirements, and higher fraud losses. For certain payment methods, we pay interchange and other related acceptance fees, along with additional transaction processing fees. We rely on third parties to provide payment transaction processing services for credit and debit cards. It could disrupt our business if these companies become unwilling or unable to provide these services to us, including due to short termshort-term disruption of service. We are also subject to evolving payment card association and network operating rules, including data security rules, certification requirements and rules governing electronic funds transfers. For example, we are subject to Payment Card Industry Data Security Standards (“PCI DSS”),Standards, which contain compliance guidelines and standards with regard to our security surrounding the physical and electronic storage, processing and transmission of individual cardholder data. If our payment card terminals or internal systems are breached or compromised, we may be liable for card re-issuance costs and other costs, subject to fines and higher transaction fees, and lose our ability to accept card payments from our members, or if our third-party service providers’ systems are breached or compromised, our business, financial condition, results of operations or cash flows could be adversely affected.

We are subject to various laws, regulations, and administrative practices that affect our business, including laws and regulations involving antitrust and competition, privacy, data protection, environmental, healthcare, anti-bribery, anti- corruption, tax, accounting, and financial reporting or other matters. In addition, certain states have adopted Extended Producer Responsibility (“EPR”) packaging legislation with which we must comply. These and other rapidly changing laws, regulations, policies and related interpretations, changes in the regulatory environment in which we operate, along with changes in federal policy and at regulatory agencies, as well as increased enforcement actions by various governmental and regulatory agencies, create challenges for us, may alter the environment in which we do business and may increase the ongoing costs of compliance, which could adversely affect our financial condition, results of operations and cash flows. If we are unable to continue to meet these challenges and comply with all laws, regulations, policies and related interpretations, it could negatively affect our reputation and our business results. Additionally, we are currently, and in the future may be, subject to a number of inquiries, investigations, claims, proceeding,proceedings, and requests for information from governmental agencies or private parties, the adverse outcomes of which could harm our business. Failure to successfully manage these new or pending regulatory and legal matters and resolve such matters without significant liability or damage to our reputation may adversely affect our financial condition, results of operations and cash flows. Furthermore, if new or pending legal or regulatory matters result in fines or costs in excess of the amounts accrued to date, that may also materially affect our financial condition, results of operations or cash flows.

Increasing governmental and societal attention to environmental,responsible social, and governance (“ESG”)business matters, including expanding voluntary reporting, diligence, and disclosure on topics such as climate change, waste production, water usage, human capital, labor, and risk oversight, could expand the nature, scope, and complexity of matters that we are required to control, assess, and report and could negatively affect our reputation. Additionally, there is some indication that sustainability goals are becoming more controversial, as some governmental entities in the U.S.United States and certain investor and other constituencies question the appropriateness of or object to sustainability initiatives. The recent change to the United States administration and changes in investor perspectives could also affect our ability to pursue our sustainability goals and could lead to increased criticism and associated reputational harm. In addition, weWe may face criticism as a result of ‘anti-ESG’Thriving sentimentTogether, amongour responsible business strategy, from certain stakeholders, including governmental authorities, regulators, shareholders and customers. We have established and publicly announced certain goals which we may refine in the future. The execution of thisthe strategy to achieve these goals is subject to risks and uncertainties, many of which may be outside of our control and prove to be more costly than we anticipate. These risks and uncertainties include, but are not limited to, our ability to achieve our goals within the currently projected costs and the expected timeframes; unforeseen operational and technological difficulties; the outcome of research efforts and future technology developments; and the success of our collaborations with and reliance on third parties. Any failure, or perceived failure, to achieve these goals or the setting or publication of certain targets could damage our reputation and customer, investor and other stakeholder relationships, and may even result in regulatory enforcement action. Such conditions could have an adverse effect on our business, financial condition, results of operations or cash flows. In addition, new or changing regulation or public opinion regarding our sustainability goals or our actions to achieve them may result in adverse effects on our financial performance, reputation or demand for our services and products, or may otherwise result in obligations and liabilities that cannot be predicted or estimated at this time.

Additionally, we must comply with numerous provisions regulating, among other things, health and sanitation standards, food labeling and safety, prescriptions, controlled substances, zoning, vehicle operations, fuel operations, equal employment opportunity, minimum wages and licensing for the sale of food, drugs, and alcoholic beverages. We cannot predict future laws, regulations, interpretations, administrative orders, or applications, or the effect they willmay have on our operations. They could, however, significantly increase the cost of doing business. They also could require the reformulation of some of the products that we sell (or manufacture for sale to third parties) to meet new standards. We also could be required to recall or discontinue the sale of products that cannot be reformulated. These changes could result in additional record keeping, expanded documentation of the properties of certain products, expanded or different labeling, or scientific substantiation. Any or all of these requirements could have an adverse effect on our financial condition, results of operations or cash flows.

In addition to legal and regulatory risks, weWe currently are a party toto, and will continue to be a party to, third partythird-party legal proceedings, including matters involving personnel and employment issues, personal injury, property damage, privacy, contract disputes, private rights of action under certain regulations,regulations and other proceedings, including but not limited to opioid litigation and litigation with Albertsons. Some of these proceedings are brought by individuals and others purport to be brought as class actions on behalf of similarly situated parties. Some of these proceedings could result in a substantial loss to Kroger. We estimate our exposure to these legal proceedings and establish accruals for the estimated liabilities, where it is reasonably possible to estimate and where an adverse outcome is probable. Assessing and predicting the outcome of these matters involves substantial uncertainties. Adverse outcomes in these legal proceedings, or changes in our evaluations or predictions about the proceedings, could have an adverse effect on our financial condition, results of operations or cash flows. Please also refer to the “Litigation” sectionand “Opioids” sections in Note 12 to the Consolidated Financial Statements.

As discussed in more detail below in “Management’s Discussion and Analysis of Financial Condition and Results of Operations-CriticalOperations—Critical Accounting Policies-Multi-EmployerPolicies—Multi-Employer Pension Plans,” Kroger contributes to several multi-employer pension plans based on obligations arising under collective bargaining agreements with unions representing associates covered by those agreements. We believe the present value of actuarially accrued liabilities in most of these multi- employermulti-employer plans exceeds the value of the assets held in trust to pay benefits, and we expect that Kroger’s contributions to most of these funds will increase over the next few years. A significant increase to those funding requirements could adversely affect our financial condition, results of operations or cash flows. Despite the fact that the pension obligations of these funds are not the liability or responsibility of the Company, except as noted below, there is a risk that the agencies that rate our outstanding debt instruments could view the underfunded nature of these plans unfavorably, or adjust their current views unfavorably, when determining their ratings on our debt securities. Any downgrading of our debt ratings likely would adversely affect our cost of borrowing and access to capital.

We alsohave been designated as the named fiduciary for, and currently bear the investment risk of two multi-employer pension plans in which we participate. In addition, we have been designated as the named fiduciary of these funds with sole investment authority of the assets of these funds. If investment results for these plans fail to meet our expectations, we could be required to make additional contributions to fund a portion of or the entire shortfall, which could have an adverse effect on our business, financial condition, results of operations or cash flows.

We enter into mergers, acquisitions and strategic alliances with expected benefits including, among other things, operating efficiencies, procurement savings, innovation and sharing of best practices, that may allow for future growth. Achieving the anticipated or desired benefits may be subject to a number of significant challenges and uncertainties, including, without limitation, whether unique corporate cultures will work collaboratively in an efficient and effective manner, the coordination of geographically separate organizations, the possibility of imprecise assumptions underlying expectations regarding potential synergies, capital requirements, and the integration process (including the integration of internal controls into our business operations), unforeseen expenses and delays and competitive factors in the marketplace. We could also encounter unforeseen transaction and integration-related costs or other circumstances such as unforeseen liabilities or other issues. Many of these potential circumstances are outside of our control and any of them could result in increased costs, decreased revenue, decreased synergies and the diversion of management time and attention. If we are unable to achieve our objectives within the anticipated time frame, or at all, the expected benefits may not be realized fully or at all, or may take longer to realize than expected, which could have an adverse effect on our business, financial condition, results of operations or cash flows.

We sell a significant amount of fuel in our 1,7021,731 fuel centers, which could face increased regulation, including due to climate change or other environmental concerns, and demand could be affected by concerns about the effect of emissions on the environmentenvironment, as well as retail price increases. We are unable to predict future regulations, environmental effects, political unrest, acts of war or terrorism, disruptions to the economy, including but not limited to pandemics and other health crises, geopolitical conflicts, tariffs and other matters that affect the cost and availability of fuel, and how our customers will react to such factors, which could adversely affect our financial condition, results of operations or cash flows.

Our operating results could be materially affected by changes in overall economic conditions and other economic factors that affect consumer confidence and spending, including discretionary spending. Future economic conditions affecting disposable consumer income such as employment levels, business conditions, overall economic slowdown or recession, changes in housing market conditions, changes in government benefits such as SNAP/EBT, student loan relief, or child care credits, the availability of credit, interest rates, inflation, disinflation or deflation, tax rates, tariffs and other matters could reduce consumer spending. Inflation could materially affect our operating results through increases to our cost of goods, supply chain costs and labor costs. In addition, the economic factors listed above, or any other economic factors or circumstancescircumstances, including those resulting in higher transportation, labor, insurance or healthcare costs or commodity prices, and other economic factors can increase our merchandise costs and operating, general and administrative expenses and otherwise adversely affect our financial condition, results of operations or cash flows. Increased fuel prices also have an effect on consumer spending and on our costs of producing and procuring products that we sell. A deterioration in overall economic conditions, including the uncertainty caused by inflation rate volatility, could adversely affect our business in many ways, including slowing sales growth, reducing overall sales and reducing gross margins. Geopolitical and catastrophic events, such as wars and conflicts, civil unrest, acts of terrorism or other acts of violence, could materially affect our results, including several occurrences which have taken place at our locations, including active shooter situations orsituations, the loss of merchandise as a result of shrink or industry-wide theft and organized retail crime, or pandemics or other health crises, and other matters that couldmay reduce consumer spending, could materially affect our financial condition, results of operations or cash flows. We regularly maintain cash balances at third-party financial institutions in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit and are therefore reliant on banks and other financial institutions to safeguard and allow ready access to these assets. If banks or financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our existing cash, cash equivalents and investments may be threatened. We are unable to predict how the global economy and financial markets will perform or their volatility. If the global economy and financial markets do not perform as we expect, it could adversely affect our business, financial condition, results of operations or cash flows.

A large number of our stores, distribution facilities and fulfillment centers are geographically located in areas that are susceptible to hurricanes, tornadoes, floods, droughts, wildfires, ice and snow storms, and earthquakes. Weather conditions and natural disasters have, and may again in the future, disrupt our operations at one or more of our facilities, interrupt the delivery of products to our stores, substantially increase the cost of products, including supplies and materialsmaterials, and substantially increase the cost of energy needed to operate our facilities or deliver products to our facilities. Moreover, the effects of climate change, including those associated with extreme weather events, may affect our ability to procure needed commodities at costs and in quantities that are optimal for us or at all. Adverse weather or natural disasters and other matters that could reduce consumer spending, could materially affect our financial condition, results of operations or cash flows.

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.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 report,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 3,1, 2024,2025, which provides additional information on comparisons of fiscal years 20232024 and 2022.2023.

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 the four pillars of Fresh, Our Brands, Personalization and Seamless,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 Krogerretail Precision Marketing.media. In turn, the value generated from these businesses enables us to reinvest back into our retail business.

We are focused on enhancing our pillarstop priorities and delivering an exceptional customer experience to accelerate this flywheel effect. By expanding our store network and improving our digitaleCommerce capabilities, we expect to grow households and increase sales. Our model provides morevarious ways than ever to generate net earnings growth.

ThisWe believe this will be achieved by:

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. During the fourth quarter of 2024, following the termination of the merger with Albertsons, as discussed in Note 18 to the Consolidated Financial Statements, we resumed our share repurchase program after a more than two-year pause to return excess capital to our shareholders.

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 four strategic pillars: Fresh, Our Brands, Data & Personalization and Seamless.eCommerce.

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 98%substantially all of our consolidated sales, isare our only reportable segment.

As of FebruaryJanuary 1,31, 2025,2026, Kroger operates supermarkets under a variety of local banner names in 35 states and the District of Columbia. As of FebruaryJanuary 1,31, 2025,2026, Kroger operated, either directly or through its subsidiaries, 2,7312,697 supermarkets, of which 2,2732,250 had pharmacies and 1,7021,731 had fuel centers. We connect with customers through our expandinggrowing seamlessnetwork ecosystemof in-store and thedigital shopping options, delivering a consistent delivery of a 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.

We offer a convenient shopping experience for our customers regardless of how they choose to shop with us, including Pickup, DeliveryPickup and Ship.Delivery. We offer Pickup and Harris Teeter ExpressLane™ — personalized, order online, pick up at the store services — at 2,4122,408 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 zero compromise onbroad 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.

The traffic and data generated by our retail business, including pharmacies and fuel centers, is enabling this transformation. Kroger serves approximately 63 million households annuallyannually, 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 is allowingallows us to utilize this data to create personalized experiences and value for our customers and is also enablingenables our fast-growing,growing, high operating margin alternative profit businesses, including data analytic services and third-party media revenue. Our retail media business – Kroger Precision Marketing – provides best in class media capabilities for our consumer packaged goods partners and other industry verticals. It is a key driver of our digital profitability and alternative profit.

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 shareshare, 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 evaluate our results of operations and cash flows using a variety of key performance indicators, such as sales, identical sales, excluding fuel,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.

Total sales decreasedincreased in 2024,2025, compared to total 2023 adjusted sales,2024, by 0.1%. Total 2023 adjusted sales represent total sales for 2023 excluding the Extra Week.0.4%. The decreaseincrease 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, partially offset by an increase in total sales to retail customers without fuel.Pharmacy. Total supermarket fuel sales decreased 8.4%,9.3% in 2025, compared to 2023 adjusted supermarket fuel sales,2024, primarily due to a decrease in the average retail fuel price of 5.9%6.1% and a decrease in fuel gallons sold of 2.6%.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 andfuel, Kroger Specialty Pharmacy,Pharmacy adjusted forand the ExtraLabor Week,Dispute, increased 1.8%3.1% in 2024,2025, compared to 2023,2024, which was primarily due to our identical sales increase, excluding fuel,fuel and the Labor Dispute, of 1.5%.2.9%. Identical sales, excluding fuel,fuel and the Labor Dispute, for 2024,2025, compared to 2023,2024, increased primarily due to increasesincreased inpharmacy, totaleCommerce and loyal households shopping with us, increased Health and WellnessFresh sales and digitalincreased sales,spend per item, partially offset by a reduction in the number of itemsunits in basket.sold.

We calculate identical sales, excluding fuel, as sales to retail customers, including sales from all departments at identical supermarket locations, Kroger Specialty Pharmacy businesslocations and Delivery and Ship solutions. We define a supermarket as identical when it has been in operation without expansion or relocation for five full quarters. We define Kroger Specialty Pharmacy business as identical when physical locations have been in operation continuously for five full quarters; discontinued patient therapies are excluded from the identical sales calculation starting in the quarter of transfer or termination. Starting in the first quarter of 2024, Kroger Specialty Pharmacy businesses were not included in identical sales due to being classified as held for sale, while they were included in identical sales in fiscal year 2023. We completed the sale of the Kroger Specialty Pharmacy business during the third quarter of 2024. We include sales from 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.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 table.tables. We used the identical sales, excluding fuel, dollar figures presented below to calculate percentage changes for 20242025 and 2023.2024.

Our gross margin rates, as a percentage of sales, were 22.26%22.9% in 20242025 and 21.83%22.3% in 2023.2024. This increase resulted primarily from the sale of our Kroger Specialty Pharmacy business, which has a lower gross margin rate, strongsourcing Our Brands performance,improvements, lower shrinkshrink, lower supply chain costs and decreased fuel sales, which hashave a lower gross margin rate, partially offset by lowerincreased pharmacy margins.sales, which have a lower gross margin rate, and increased price investments.

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 ExtraLabor Week,Dispute, our FIFO gross margin rate increased 3244 basis points in 2024,2025, compared to 2023.2024. This increase resulted primarily from the sale of our Kroger Specialty Pharmacy business, which has a lower gross margin rate, strongsourcing Ourimprovements, Brandslower performanceshrink and lower shrink,supply chain costs, partially offset by lowerincreased pharmacy margins.sales, which have a lower gross margin rate, and increased price investments. Excluding the effect of fuel, the ExtraLabor WeekDispute and Kroger Specialty Pharmacy, our FIFO gross margin rate increased 14 basis points in 2024,2025, compared to 2023.2024.

OG&A expenses, as a percentage of sales, were 17.29%19.2% in 20242025 and 17.50%17.3% in 2023.2024. The decreaseincrease in 2024,2025, compared to 2023,2024, resulted primarily from the 2023 OG&A Adjusted Items and continued execution of broad-based cost savings initiatives that drive administrative efficiencies, including store productivity, partially offset by 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 incentive plan costs, an increase inhealthcare costs dueand toincreased themulti-employer severitypension ofcontributions, generalpartially liabilityoffset claims, planned investment in associates andby the 2024 OG&A Adjusted Items.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 Extra Week, the 20242025 OG&A Adjusted ItemsItems, the Labor Dispute and the 20232024 OG&A Adjusted Items, our OG&A rate increased 3129 basis points in 2024,2025, compared to 2023.2024. This increase resulted primarily from the sale of our Kroger Specialty Pharmacy business, which has a lower OG&A raterate, toas a percentage of sales, increased incentive plan costs, an increase inhealthcare costs due to the severity of general liability claims and plannedincreased investmentsmulti-employer inpension associates,contributions, partially offset by thedecreased incentive plan costs and continued execution of broad-based improvement from cost savings initiatives that drive administrative efficiencies, including store productivity. Excluding the effect of fuel, the Extra Week, Kroger Specialty Pharmacy, the 2024 OG&A Adjusted Items and the 2023 OG&A Adjusted Items, our OG&A rate increased 19 basis points in 2024, compared to 2023.

Depreciation and amortization expense increased, as a percentage of sales, in 2024,2025, compared to 2023,2024. This increase was primarily due to the Extrasale Week,of additionalour Kroger Specialty Pharmacy business, which has a lower depreciation associated& withamortization higherrate capitalto investmentssales, duringpartially 2024offset by a reduction in depreciation and aamortization decreaseexpense indue to the averagefulfillment usefulnetwork lifeimpairment on these capital investments.charge.

FIFO operatingOperating profit was $3.9$1.9 billion, or 2.68%1.28% of sales, for 2024,2025, compared to $3.2$3.8 billion, or 2.14%2.62% of sales, for 2023.2024. FIFOThe operatingresults for 2025 include $2.5 billion of fulfillment network impairment and related charges. Operating profit, as a percentage of sales, excluding the 2024 and 2023 Adjusted Items and the Extra Week, decreased 8134 basis points in 2024,2025, compared to 2023,2024, primarily due to increased OG&A andexpenses, depreciation and amortization expenses,expenses and the LIFO charge, as a percentage of sales, and a decrease in fuel operating profit, partially offset by a higher FIFO gross margin rate.

Net interest expense totaled $639 million in 2025, compared to $450 million in 20242024. andThis $441increase million in 2023. Net interest expense increased in 2024, compared to 2023,resulted primarily due tofrom increased average total outstanding debt throughoutin 2024,2025, compared to 2023,2024, from the net proceeds of the senior notes issuance andduring the $34third millionquarter forof merger-related2024, netand interest expense, partially offset by increaseddecreased interest income earned on our cash and temporary cash investments due to increaseddecreased balances of cash and temporary cash investments in 2024,2025, compared to 2023.2024, 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.

Our effective income tax rate was 14.7% in 2025 and 20.0% in 20242024. 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 23.5%the inutilization 2023.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. The 2023 tax rate differed from the federal statutory rate due to the effect of state income taxes and the nondeductible portion of opioid settlement charges, partially offset by the benefit from share-based payments and the utilization of tax credits.

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 24.0%9% compared to net earnings of $2.96 per diluted share for 2023. Excluding the 2024 and 2023 Adjusted Items and the Extra Week, adjusted net earnings of $4.47 per diluted share for 2024 represented a decrease of 2.0% compared to adjusted net earnings of $4.56 per diluted share for 2023.2024. The decreaseincrease in adjusted net earnings per diluted share resulted primarily from decreasedincreased adjusted FIFO operating profit, excluding fuel, lower income tax expense and decreasedlower fuelcommon earnings,shares outstanding, partially offset by a decreased LIFO charge and lowerincreased net interest expense.expense and an increased LIFO charge.

(1)Taxes receivable were $198 as of January 31, 2026, $84 as of February 1, 2025,2025 and $163 as of February 3, 2024 and $231 as of January 28, 2023.2024.

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, we perform an impairment calculation,calculation is performed, comparing projected undiscounted future cash flows, utilizing current cash flow information and expected growth rates related to specific stores,asset groups, to the carrying value for those stores.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 determined 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, we adjust the value of the property and equipment is adjusted to reflect recoverable values based on our previous efforts to dispose of similar assets and current economic conditions. WeImpairment recognizeis impairmentrecognized 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 losseslosses. and $69 million in 2023. We record costsCosts 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.

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.

Our goodwill totaled $2.7$2.6 billion as of FebruaryJanuary 1,31, 2025.2026. 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 2024,2025, 20232024 and 20222023 did not result in impairment for any of our reporting units other than Vitacost.com described above.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.

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 2024,2024 and $635 million in 20232023. andThe $620 millionincrease in 2022.2025, 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 and 2022,2023, is due to the fulfillment of contractually obligated payments related to our commitments established when restructuring the United Food and Commercial WorkersUFCW 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. SignificantAs effectswe ofcontinue theseto restructuringwork agreementsto recordedfind insolutions ourto Consolidatedunder-funded Financialmulti-employer Statementspension are:plans, it is possible we could incur withdrawal liabilities for certain funds.

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. As of December 31, 2023, we estimate our share of the underfunding of multi-employer pension plans to which we contribute was approximately $2.5 billion, $1.9 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, 2024.2025. 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, except as noted above,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 ARP Act, which was signed into law on March 11, 2021, established a special financial assistance program for financially troubled multi-employer pension plans. Under the ARP Act, eligible multi-employer plans can apply to receive a cash payment in anthe amount projected by the Pension Benefit Guaranty Corporationneeded to pay pension benefits through the plan year ending 2051. At the end of 2024,2025, we expect a certain multi-employer pension plansplan in which we participate, for which our estimated share of underfunding is approximately $665$38 million, $509$29 million net of tax, to apply for or receive funding in 2025,2026, which may reduce a portion of our share of unfunded multi-employer pension plan liabilities.

Refer to Note 1920 and Note 2021 to the Consolidated Financial Statements for recently adopted accounting standards and recently issued accounting standards not yet adopted as of FebruaryJanuary 1,31, 2025.2026.

The following table summarizes our net (decrease) increase in cash and temporary cash investments for 20242025 and 20232024:

We generated $5.8$7.3 billion of cash from operations in 2024,2025, compared to $6.8$5.8 billion in 2023.2024. The decreasechange in net earnings including noncontrolling interests is discussed in the Results of Operations section. Other significant items affecting net cash generatedprovided fromby operationsoperating wasactivities primarily due toinclude the following:

This 10-Q, including the financial statement notes and the following discussion and analysisanalysis, contains certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), about our future performance. These statements are based on management’s assumptions and beliefs in light of the information currently available to it. Such statements are indicated by words such as “accelerate,” “achieve,” “affect,” “anticipate,” “believe,” “committed,” “continue,” “could,” “creating,” “drive,” “enable,” “estimate,” “expect,” “future,” “goals,” “initiatives,intend,” “maintain,” “may,” “model,” “plan,” “position,” “strategy,” “target,” “trend,” and “will,” and similar words or phrases. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially. These include the specific risk factors identified in “Risk Factors” in our Annual Report on Form 10-K for our last fiscal year and any subsequent filings, as well as those identified in this Form 10-Q.

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 the first quartertwo quarters of 2026 include the following, which we define as the “2026 Adjusted Items”:

Net earnings for the firstsecond quarter of 20252026 include the following, which we define as the “20252026 Second Quarter Adjusted Items”:

Total sales increased in the firstsecond quarter of 2026, compared to the firstsecond quarter of 2025, by 2.2%.2.0%. The increase was primarily due to an increase in supermarket fuel sales and identical sales, excluding fuel and the Labor Dispute,fuel, partially offset by the sale of Vitacost.comVitacost.com, closed stores and closedfulfillment center exits in markets where Kroger does not operate stores. Total supermarket fuel sales increased 21.3%25.6% in the firstsecond quarter of 2026, compared to the firstsecond quarter of 2025, primarily due to an increase in the average retail fuel price of 22.7%.25.3%. Total sales, excluding fuelfuel, Vitacost.com and Vitacost.com,fulfillment center exits in markets where Kroger does not operate stores, increased 0.5%0.1% in the firstsecond quarter of 2026, compared to the firstsecond quarter of 2025, which was primarily due to our identical sales increase, excluding fuel and the Labor Dispute,fuel, of 1.0%,0.2%, partially offset by closed stores. Identical sales, excluding fuel and the Labor Dispute,fuel, for the firstsecond quarter of 2026, compared to the firstsecond quarter of 2025, increased primarily due to increased eCommerce, pharmacy,natural Freshfoods, meat and Ourseafood, Brandsbakery and pharmacy sales and increased spend per item, partially offset by a reduction in the number of units sold, and the effects from the Inflation Reduction Act of 130138 basis points, a customer shift from brand to generic prescriptions of 4061 basis points, the effects of the Cyclospora outbreak of approximately 35 basis points and egg deflation of 6430 basis points.

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 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 the second quarter and first quartertwo quarters of 2026.

Our gross margin rates, as a percentage of sales, were 22.7%22.4% in the firstsecond quarter of 2026 and 23.0%22.5% in the firstsecond quarter of 2025. This decrease resulted primarily from increased fuel sales, which have a lower gross margin rate, higher transportation costs, as a percentage of sales, egghigher deflationshrink and increasedgreater pricevalue investments,delivered for customers, partially offset by improved eCommerce profitability, increased third-party media revenue, higher pharmacy margins, improved eCommerce profitability, sourcing improvementsimprovements, tariff refunds, which were fully invested in value, a decreased LIFO charge and lower depreciation and amortization, as a percentage of sales.

Our LIFO charge was $52$39 million in the firstsecond quarter of 2026, compared to $40$62 million in the second quarter of 2025. Our LIFO charge was $91 million in the first quartertwo quarters of 2026, compared to $102 million in the first two quarters of 2025. The increasedecrease in the LIFO charge was due to higherlower expected annualized product cost inflation for 2026, compared to 2025.

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,fuel, our FIFO gross margin rate decreasedincreased 913 basis points in the firstsecond quarter of 2026, compared to the firstsecond quarter of 2025. This decreaseincrease resulted primarily from improvement in eCommerce profitability, increased third-party media revenue, higher pharmacy margins, sourcing improvements and tariff refunds, which were fully invested in value, partially offset by higher transportation costs, as a percentage of sales, egghigher deflationshrink and increasedgreater pricevalue investments,delivered partiallyfor offset by higher pharmacy margins, improved eCommerce profitability and sourcing improvements.customers.

OG&A expenses consist primarily of employee-related costs such as wages, healthcare benefit costs, retirement plan costs, utilities,utilities and credit card fees. Rent expense, depreciation and amortization expense,expense and interest expense are not included in OG&A.

OG&A expenses, as a percentage of sales, were 17.3%17.2% in the firstsecond quarter of 2026 and 17.6% in the firstsecond quarter of 2025. The decrease in the firstsecond quarter of 2026, compared to the firstsecond quarter of 2025, resulted primarily from the effect of increased fuel sales, which decreases our OG&A rate, as a percentage of sales, continued execution of broad-based cost savings initiatives that drive administrative efficiencies, including store productivity, decreasedlower multi-employerincentive pensionplan contributionscosts and the 2025 Second Quarter OG&A Adjusted Items, partially offset by planned investments in associates, increased maintenancehealthcare costscosts, supermarket sales deleverage and the 2026 Second Quarter OG&A Adjusted Items.

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 2026 OG&ASecond Adjusted Items, the 2025Quarter OG&A Adjusted Items and the Labor2025 Dispute,Second Quarter OG&A Adjusted Items, our OG&A rate increased 1633 basis points in the firstsecond quarter of 2026, compared to the firstsecond quarter of 2025. This increase resulted primarily from planned investment in associatesassociates, increased healthcare costs and increasedsupermarket maintenancesales costs,deleverage, partially offset by continued execution of broad-based cost savings initiatives that drive administrative efficiencies, including store productivityproductivity, and decreasedlower multi-employerincentive pensionplan contributions.costs.

Rent expense remained relatively consistent, as a percentage of sales, for the second quarter and first quartertwo quarters of 2026, compared to the firstsame quarterperiods of 2025.

Depreciation and amortization expense decreased 1816 basis points, as a percentage of sales, in the second quarter of 2026 compared to the second quarter of 2025. Depreciation and amortization expense decreased 17 basis points in the first quartertwo quarters of 2026, compared to the first quartertwo quarters of 2025. This decrease in both periods was primarily due to the fulfillment network closures in the fourth quarter of 2025.

Operating profit was $1.4$971 billion,million, or 3.05%2.80% of sales, for the firstsecond quarter of 2026, compared to $1.3$863 billion,million, or 2.93%2.54% of sales, for the firstsecond quarter of 2025. Operating profit, as a percentage of sales, increased 1226 basis points in the firstsecond quarter of 2026, compared to the firstsecond quarter of 2025, primarily due to decreased OG&A and depreciation and amortization expenses, as a percentage of sales, and increaseda fueldecreased operatingLIFO profit,charge, partially offset by a lower FIFO gross margin.margin rate.

FIFO operatingOperating profit was $1.5$2.4 billion, or 3.16%2.94% of sales, for the first quartertwo quarters of 2026, compared to $1.4$2.2 billion, or 3.02%2.76% of sales, for the first quartertwo quarters of 2025. FIFO operatingOperating profit, as a percentage of sales, excludingincreased the 2026 and 2025 Adjusted Items, decreased 118 basis pointpoints in the first quartertwo quarters of 2026, compared to the first quartertwo quarters of 2025, primarily due to lower FIFO gross margin, partially offset by decreased OG&A and depreciation and amortization expenses, as a percentage of sales, and increased fuel operating profit.profit, partially offset by a lower FIFO gross margin rate.

The following table provides a reconciliation of operating profit to FIFO operating profit,profit and to Adjusted FIFO operating profit, excluding the 2026 and 2025 Adjusted Items:

Net interest expense totaled $209$156 million in the firstsecond quarter of 2026, compared to $199$144 million in the second quarter of 2025. Net interest expense totaled $365 million in the first quartertwo quarters of 2026, compared to $343 million in the first two quarters of 2025. This increase resulted primarily from decreased interest income earned on our cash and temporary cash investments due to decreased balances of cash and temporary cash investments in the first quartertwo quarters of 2026, compared to the first quartertwo quarters of 2025, partially offset by decreased interest expense on the average total outstanding debt in the first quartertwo quarters of 2026, compared to the first quartertwo quarters of 2025.

The effective income tax rate was 23.2%23.6% for the firstsecond quarter of 2026 and 21.3%21.0% for the second quarter of 2025. The effective income tax rate was 23.4% for the first quartertwo quarters of 2026 and 21.2% for the first two quarters of 2025. The effective income tax rate for the firstsecond quarter of 2026 differed from the federal statutory rate due to the effect of state income taxes, partially offset by the utilization of tax credits and deductions. The effective income tax rate for the first two quarters of 2026 differed from the federal statutory rate due to the effect of state income taxes, partially offset by the utilization of tax credits and deductions including the benefit from share-based payments. The effective income tax rate for the second quarter of 2025 equaled the federal statutory rate due to the effect of state income taxes being fully offset by the utilization of tax credits and deductions including the benefit from share-based payments. The effective income tax rate for the first quartertwo quarters of 2025 differed from the federal statutory rate due to the effect of state income taxes, partially offset by the utilization of tax credits and deductions including the benefit from share-based payments, which includes the 2025 Income Tax Expense Adjusted Item.

Net earnings of $1.46$1.05 per diluted share for the firstsecond quarter of 2026 represented an increase compared to net earnings of $1.29$0.91 per diluted share for the firstsecond quarter of 2025. Excluding the 2026 and 2025 Adjusted Items, adjusted net earnings of $1.58$1.09 per diluted share for the firstsecond quarter of 2026 represented an increase of 6%5% compared to adjusted net earnings of $1.49$1.04 per diluted share for the firstsecond quarter of 2025. The increase in adjusted net earnings per diluted share resulted primarily from increased fuel earnings and lower common shares outstanding,outstanding and a decreased LIFO charge, partially offset by decreased adjusted FIFO operating profitprofit, excluding fuel.fuel, and higher income tax expense.

The following table summarizes our net (decrease) increase in cash and temporary cash investments for the first quartertwo quarters of 2026 and 2025 ($ in millions):

We generated $1.8$3.1 billion of cash from operations in the first quartertwo quarters of 2026 compared to $2.1$3.7 billion in the first quartertwo quarters of 2025. 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:

Cash paid for income taxes decreased in the first quartertwo quarters of 2026, compared to the first quartertwo quarters of 2025, primarily due to applying a 2025 tax overpayment to reduce our 2026 estimated tax payment.payments.

Investing activities used cash of $1.3$2.4 billion in the first quartertwo quarters of 2026, compared to $1.0$2.1 billion in the first quartertwo quarters of 2025. The amount of cash used by investing activities increased in the first quartertwo quarters of 2026, compared to the first quartertwo quarters of 2025, primarily due to an increase in payments for property and equipmentequipment, including payments for lease buyouts, due to the timing of major storing projects in the first quartertwo quarters of 2026, compared to the first quartertwo quarters of 2025.

Cash used by financing activities was $980$2.3 billion in the first two quarters of 2026, compared to $657 million in the first quartertwo of 2026, compared to $331 million in the first quarterquarters of 2025. The amount of cash used by financing activities increased in the first quartertwo quarters of 2026, compared to the first quartertwo quarters of 2025, primarily due to an increase in treasury stock purchases and increased payments on long-term debt including obligations under finance leases.

Capital investments, including changes in construction-in-progress payables and excluding the purchase of leased facilities, totaled $1.5$2.7 billion for the first quartertwo quarters of 2026, compared to $1.2$2.0 billion for the first quartertwo quarters of 2025. This increase is primarily due to the timing of major storing projects in the first quartertwo quarters of 2026, compared to the first quartertwo quarters of 2025. We expect our annual 2026 capital investments, including changes in construction-in-progress payables and excluding the purchase of leased facilities, to be relatively consistent with 2025. During the rolling four quarter period ended with the firstsecond quarter of 2026, we opened, expanded, relocated or acquired 2635 supermarkets and completed 285272 remodels. We define a remodel as a project that is greater than or equal to a cost of $8 per square foot. Total supermarket square footage at the end of the firstsecond quarter of 2026 decreased 1.0%0.1% from the end of the firstsecond quarter of 2025. Excluding mergers, acquisitions and operational closings, total supermarket square footage at the end of the firstsecond quarter of 2026 increased 1.0%1.3% over the end of the firstsecond quarter of 2025.

As of MayAugust 23,15, 2026, we maintained a $2.75 billion (with the ability to increase by $2.0 billion, subject to certain conditions), 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 MayAugust 23,15, 2026, we had no outstanding commercial paper and no outstanding borrowings under our credit facility. The outstanding letters of credit that reduce funds available under our credit facility totaled $3$4 million as of MayAugust 23,15, 2026.

Our credit agreement contains a financial covenant. As of MayAugust 23,15, 2026, we were in compliance with the financial covenant. Furthermore, management believes it is not reasonably likely that we will fail to comply with this financial covenant in the future.

Total debt, including both the current and long-term portions of obligations under finance leases, decreased $571$569 million as of MayAugust 23,15, 2026, compared to our fiscal year end 2025 debt of $17.6 billion. This decrease resulted primarily from the payment of $500 million of senior notes bearing an interest rate of 3.5%.

During the first quartertwo quarters of 2026, we invested $213$1.3 millionbillion to repurchase 3.121.2 million Kroger common shares at an average price of $67.77$60.63 per share, which includes excise tax on the shares repurchased. These shares were reacquired under the December 2025 Repurchase Program, the December 2024 Repurchase Program, and the 1999 Repurchase Program.

The December 2024 Repurchase Program was exhausted during the first quarter of 2026. As of MayAugust 23,15, 2026, there was $1.8$801 billionmillion remaining under the December 2025 Repurchase Program, which excludes excise tax on share repurchases in excess of issuances. Amounts available under the 1999 Repurchase Program are dependent upon option exercise activity. The December 2025 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.

We held cash and temporary cash investments of $2.9$1.7 billion as of MayAugust 23,15, 2026. 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 share repurchase programs and we will continue to evaluate the optimal use of any excess free cash flow, consistent with our capital allocation strategy.

We expect to meet our short-term and long-term liquidity needs with cash and temporary cash investments on hand as of MayAugust 23,15, 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 paymentspayments, proposed acquisition of Giant Eagle and other purchase and contractual obligations. We may also require additional capital in the future to fund organic growth opportunities, increased capacity of 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 the first quartertwo quarters of 2026, see Note 2 to the Consolidated Financial Statements.