Kroger Co. ( KR ) shares rose on Friday after the grocer topped Q1 earnings estimates, boosted margins, and reaffirmed its full-year outlook.

The company reported first-quarter adjusted earnings per share of $1.49, beating the analyst consensus estimate of $1.46. Quarterly sales of $45.12 billion missed the Street view of $45.19 billion, with identical sales ex-fuel increasing 3.2%.

The strong earnings came even as Kroger ( KR ) faced a viral backlash on TikTok, where a video showing minimally decorated Juneteenth cakes at an Atlanta store drew criticism for what many called a tone-deaf tribute to a holiday celebrating Black liberation, USA Today reports.

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Meanwhile, operating profit in the quarter under review increased to $1.322 billion from $1.294 billion a year ago.

Gross margin in the quarter under review increased to 23% from 22% a year ago. The improvement in gross margin was primarily attributable to the sale of Kroger Specialty Pharmacy, lower shrink, and lower supply chain costs, partially offset by the mix effect from growth in pharmacy sales which have lower margins.

The FIFO gross margin rate increased by 79 basis points, including a 46 basis point boost from the sale of Kroger Specialty Pharmacy.

The improvement in rate was primarily attributable to the sale of Kroger Specialty Pharmacy, lower shrink and lower supply chain costs, partially offset by the mix effect from growth in pharmacy sales which have lower margins.

Kroger ( KR ) took a $100 million charge in the first quarter for closing around 60 stores over 18 months.

The move is expected to bring “modest financial benefit,” which will be reinvested in the customer experience and won’t affect full-year guidance. All affected employees will be offered roles at other locations.

During the fourth quarter of Kroger’s fiscal 2024, Kroger ( KR ) entered into a $5 billion accelerated share repurchase program (ASR), which is expected to be completed by Kroger’s fiscal third quarter of 2025.

After completion of the ASR program, Kroger ( KR ) expects to resume open market share repurchases under the remaining $2.5 billion authorization. Kroger ( KR ) expects to complete these open market share repurchases by the end of fiscal 2025.

The company exited the quarter with total cash worth $340 million and temporary cash investments worth $4.398 billion.

Long-term debt (including obligations under finance leases) expanded to $17.138 billion, compared with $12.021 billion a year ago.

“Our strong sales results and positive momentum give us confidence to raise our identical sales ex-fuel guidance, to a new range of 2.25% to 3.25%. While first-quarter sales and profitability exceeded our expectations, the macroeconomic environment remains uncertain, and as a result, other elements of our guidance remain unchanged,” CFO David Kennerley said.

He expressed continued confidence in the company’s strategy and added, “We continue to believe that our strategy focusing on fresh, Our Brands and eCommerce will continue to resonate with customers, and our resilient model positions us well to navigate the current environment.”

Outlook

Kroger ( KR ) reaffirmed its fiscal 2025 adjusted EPS guidance of $4.60 to $4.80, compared with the $4.75 analyst estimate.

The company raised identical sales ex-fuel outlook to 2.25%-3.25% versus the prior view of 2%-3%.

Price Action: KR shares are trading higher by 8.97% to $71.40 at last check Friday.

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