KR

Kroger's headline FY2026 numbers look ugly — net income fell 61.9% to $1.02B, operating profit fell 50.9% to $1.89B, and diluted EPS dropped 58% to $1.54, putting the GAAP P/E at a rich 36.5. But the MD&A tells you those GAAP figures are distorted by roughly $2.2B of one-time 'Adjusted Items' (the filing points to Litigation and Opioids in Note 12). On a normalized basis the business barely moved: adjusted FIFO operating profit rose 4.9% to $4,905M and adjusted diluted EPS actually grew 8.5% to $4.85. Against $4.85 of adjusted earnings the stock trades at just ~11.6x — a cheap multiple for a stable, defensive, investment-grade grocer, and the reason the P/S is a rounding error at 0.2x.

The operating story underneath is quietly improving, not deteriorating. Identical sales excluding fuel accelerated to +2.9% from +1.5%, the filing cites positive market-share gains in the final period, and management flags double-digit eCommerce and pharmacy momentum plus retail-media 'alternative profit' growth. Cash generation is the real strength: operating cash flow jumped 26.2% to $7.31B, comfortably funding $3.85B of capex (down 4%) and leaving ~$3.5B of free cash flow. That cash is being returned aggressively — $2.70B of buybacks drove the share count down 7.3% to 613M, and the per-share dividend rose 9.8% even as total dividends paid ($885M) held flat. Fewer shares against roughly stable adjusted earnings is a durable per-share tailwind.