Second Quarter Highlights
Identical Sales without fuel increased 1.2%
Operating Profit of $815 million; EPS of $0.64
Adjusted FIFO Operating Profit of $984 million and Adjusted EPS of $0.93
Achieved strong Adjusted Free Cash Flow
Executed its go-to-market strategy to deliver value for customers
Grew digital sales 11%
Increased total households, customer visits and loyal households
CINCINNATI, Sept. 12, 2024 /PRNewswire/ -- The Kroger Co. (NYSE:KR) today reported its second quarter 2024 results, reaffirmed guidance and updated investors on how Leading with Fresh and Accelerating with Digital continues to position Kroger for long-term sustainable growth.
Comments from Chairman and CEO Rodney McMullen
"Kroger achieved solid results in the second quarter demonstrating the strength and resiliency of our model.
We are growing households and increasing customer visits by offering a compelling combination of affordable prices and personalized promotions on great quality products, all through a unique seamless experience. We appreciate our associates for their focus on full, fresh and friendly, which elevates the customer experience.
Our long-term model is to consistently invest to lower prices so more customers shop with us, which in turn fuels our alternative profit businesses and drives greater efficiencies This flywheel enables Kroger to deliver exceptional value for customers and investing in our associates, and by doing so, we are well-positioned to generate attractive and sustainable returns for shareholders."
Comments from Chairman and CEO Rodney McMullen on the pending merger with Albertsons
"As we near the close of the FTC's preliminary injunction hearing, we are confident in the facts and the strength of our position. The food industry has always been competitive and will continue to be after this merger. We are committed to closing this merger because bringing Kroger and Albertsons together will provide meaningful and measurable benefits – lower prices, secure jobs and expanded access to fresh, affordable food – for customers, associates, and communities across the country."
Second Quarter Financial Results
2Q24 ($ in millions; except EPS)
2Q23 ($ in millions; except EPS)
ID Sales* (Table 4)
1.2 %
1.0 %
Earnings (Loss) Per Share**
$0.64
($0.25)
Adjusted EPS (Table 6)
$0.93
$0.96
Operating (Loss) Profit**
$815
($479)
Adjusted FIFO Operating Profit (Table 7)
$984
$989
FIFO Gross Margin Rate*
Increased 42 basis points
OG&A Rate*
Increased 65 basis points
* Without fuel and adjustment items, if applicable.
** The 2nd quarter of 2023 includes a $1.4 billion ($1.54 loss per share) charge related to nationwide opioid settlement framework.
Total company sales were $33.9 billion in both the second quarters of 2024 and 2023. Excluding fuel, sales increased 1.3% compared to the same period last year.
Gross margin was 22.6% of sales for the second quarter. The FIFO gross margin rate, excluding fuel, increased 42 basis points compared to the same period last year. This result reflected Kroger's ability to improve margin, while maintaining competitive pricing and helping customers manage their budgets. The increase in rate was primarily attributable to favorable product mix in our grocery business including Our Brands, lower shrink and sourcing benefits partially offset by lower pharmacy margins.
The LIFO charge for the quarter was $21 million, compared to a LIFO charge of $4 million for the same period last year.
The Operating, General & Administrative rate increased 65 basis points, excluding fuel and adjustment items, compared to the same period last year. This increase in rate was driven by investments in associate wages, increased incentive plan costs, hurricane related costs and an increase in costs due to the severity of general liability claims, partially offset by continued execution of cost savings initiatives.
Capital Allocation Strategy
Kroger expects to continue to generate strong free cash flow and remains committed to investing in the business to drive long-term sustainable net earnings growth, as well as maintaining its current investment grade debt rating. The Company expects to continue to pay its quarterly dividend and expects this to increase over time, subject to board approval. Kroger has paused its share repurchase program to prioritize de-leveraging following the proposed merger with Albertsons.
Kroger's net total debt to adjusted EBITDA ratio is 1.24 compared to 1.31 a year ago (Table 5). The company's net total debt to adjusted EBITDA ratio target range is 2.30 to 2.50. Kroger's strong balance sheet provides ample opportunities for the Company to pursue growth and enhance shareholder value.
Full-Year 2024 Guidance*
Reaffirmed
Adjusted FIFO Operating Profit of $4.6 – $4.8 billion
Adjusted net earnings per diluted share of $4.30 – $4.50
Adjusted Free Cash Flow of $2.5 – $2.7 billion**
Adjusted effective tax rate of 23%***
Updated
Identical Sales without fuel of 0.75% – 1.75%
Capital expenditures of $3.6 – $3.8 billion
* Without adjusted items, if applicable. Kroger is unable to provide a full reconciliation of the GAAP and non-GAAP measures used in 2024 guidance without unreasonable effort because it is not possible to predict certain of our adjustment items with a reasonable degree of certainty. This information is dependent upon future events and may be outside of our control and its unavailability could have a significant impact on 2024 GAAP financial results.
** Adjusted free cash flow excludes planned payments related to the restructuring of multi-employer pension plans, payments related to opioid settlements and merger-related expenses.
*** The adjusted tax rate reflects typical tax adjustments and does not reflect changes to the rate from the completion of income tax audit examinations and changes in tax laws and policies, which cannot be predicted.
Comments from Interim CFO Todd Foley
"Our solid sales results through the first two quarters of the year give us the confidence to raise the low end of our full-year identical sales without fuel guidance by 50 basis points. We now expect identical sales without fuel to be in the range of 0.75% to 1.75%.
Our positive customer trends are driving sales momentum that we expect to continue in the second half of the year."
Second Quarter 2024 Highlights
Leading with Fresh
Introduced 223 new Our Brands items, including the expansion of the Smart Way™ product line
Celebrated seven awards earned by Murray's Cheese varieties at the American Cheese Society Competition
Introduced seasonal fresh favorite Hatch Chiles and Harvest Apple Private Selection® products
Accelerating with Digital
Increased delivery sales by 17% over last year led by Customer Fulfillment Centers
Grew eCommerce households by 14% compared to last year
Held Boost Bonus Days, a two-week mega-sales event with exclusive access for Boost by Kroger Plus members
Associate Experience
Received the top score on the Disability Equality Index® making the company one of the Best Places to Work for Disability Inclusion for the fifth consecutive year
Celebrated 67 female leaders named as Top Women in Grocery Honorees by Progressive Grocer
Received four Brandon Hall Group – Excellence in Human Capital Management Awards®
Live Our Purpose
Honored more than 14,000 students named as Zero Heroes for supporting the Zero Hunger | Zero Waste mission to create communities free from hunger and waste
Announced the 6th year of Kroger's Wellness Festival, a two-day event celebrating physical, mental and emotional health for the whole family
Recognized as one of the World's Most Trustworthy Companies for 2024 by Newsweek and Statista
Subsequent Event
Successfully completed debt offering for $10.5 billion, with the net proceeds expected to partially fund the cash consideration for the proposed merger. A portion of the proceeds of the offering is subject to a special mandatory redemption if the merger does not close
About KrogerAt The Kroger Co. (NYSE:KR), we are dedicated to our Purpose: to Feed the Human Spirit™. We are, across our family of companies nearly 420,000 associates who serve over eleven million customers daily through a seamless digital shopping experience and retail food stores under a variety of banner names, serving America through food inspiration and uplift, and creating #ZeroHungerZeroWaste communities by 2025. To learn more about us, visit our newsroom and investor relations site.
Kroger's second quarter 2024 ended on August 17, 2024.
Note: Fuel sales have historically had a low gross margin rate and operating expense rate as compared to corresponding rates on non-fuel sales. As a result, Kroger discusses the changes in these rates excluding the effect of fuel.
Please refer to the supplemental information presented in the tables for reconciliations of the non-GAAP financial measures used in this press release to the most comparable GAAP financial measure and related disclosure. As noted above, Kroger is unable to provide a full reconciliation of the GAAP and non-GAAP measures used in its guidance without unreasonable effort because it is not possible to predict certain of our adjustment items with a reasonable degree of certainty. This information is dependent upon future events and may be outside of our control and its unavailability could have a significant impact on GAAP financial results.
This press release contains certain statements that constitute "forward-looking statements" about Kroger's financial position and the future performance of the company. 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 or phrases such as "achieve," "committed," "confident," "continue," "deliver," "enables," "expect," "future," "guidance," "model," "outlook," "strategy," "target," "trends," "well-positioned," "will," and variations of such words and similar phrases. Various uncertainties and other factors could cause actual results to differ materially from those contained in the forward-looking statements. 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 the following:
Kroger's ability to achieve sales, earnings, incremental FIFO operating profit, and adjusted free cash flow goals may be affected by: our proposed transaction with Albertsons, including, among other things, our ability to consummate the proposed transaction and related divestiture plan, including on the terms of the merger agreement and divestiture plan, on the anticipated timeline, with the required regulatory approvals, and/or resolution of pending litigation challenging the merger; labor negotiations; potential work stoppages; changes in the unemployment rate; pressures in the labor market; changes in government-funded benefit programs; changes in the types and numbers of businesses that compete with Kroger; pricing and promotional activities of existing and new competitors, and the aggressiveness of that competition; Kroger's response to these actions; the state of the economy, including interest rates, the inflationary, disinflationary and/or deflationary trends and such trends in certain commodities, products and/or operating costs; the geopolitical environment including wars and conflicts; unstable political situations and social unrest; changes in tariffs; the effect that fuel costs have on consumer spending; volatility of fuel margins; manufacturing commodity costs; supply constraints; diesel fuel costs related to Kroger's logistics operations; trends in consumer spending; the extent to which Kroger's customers exercise caution in their purchasing in response to economic conditions; the uncertainty of economic growth or recession; stock repurchases; changes in the regulatory environment in which Kroger operates; Kroger's ability to retain pharmacy sales from third party payors; consolidation in the healthcare industry, including pharmacy benefit managers; Kroger's ability to negotiate modifications to multi-employer pension plans; natural disasters or adverse weather conditions; the effect of public health crises or other significant catastrophic events; the potential costs and risks associated with potential cyber-attacks or data security breaches; the success of Kroger's future growth plans; the ability to execute our growth strategy and value creation model, including continued cost savings, growth of our alternative profit businesses, and our ability to better serve our customers and to generate customer loyalty and sustainable growth through our strategic pillars of fresh, our brands, personalization, and seamless; and the successful integration of merged companies and new partnerships; and the risks relating to or arising from our proposed nationwide opioid litigation settlement, including our ability to finalize and effectuate the settlement, the scope and coverage of the ultimate settlement and the expected financial or other impacts that could result from the settlement. Our ability to achieve these goals may also be affected by our ability to manage the factors identified above. Our ability to execute our financial strategy may be affected by our ability to generate cash flow.
Kroger's adjusted effective tax rate may differ from the expected rate due to changes in tax laws and policies, the status of pending items with various taxing authorities, and the deductibility of certain expenses.
Kroger assumes no obligation to update the information contained herein unless required by applicable law. Please refer to Kroger's reports and filings with the Securities and Exchange Commission for a further discussion of these risks and uncertainties.
Note: Kroger's quarterly conference call with investors will broadcast live at 10 a.m. (ET) on September 12, 2024 at ir.kroger.com. An on-demand replay of the webcast will be available at approximately 1 p.m. (ET) on Thursday, September 12, 2024.
2nd Quarter 2024 Tables Include:
Consolidated Statements of Operations
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Supplemental Sales Information
Reconciliation of Net Total Debt and Net Earnings Attributable to The Kroger Co. to Adjusted EBITDA
Net Earnings Per Diluted Share Excluding the Adjustment Items
Operating Profit Excluding the Adjustment Items
Table 1.
THE KROGER CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
(unaudited)
SECOND QUARTER
YEAR-TO-DATE
2024
2023
2024
2023
SALES
$ 33,912
100.0 %
$ 33,853
100.0 %
$ 79,181
100.0 %
$ 79,018
100.0 %
OPERATING EXPENSES
MERCHANDISE COSTS, INCLUDING ADVERTISING,
WAREHOUSING AND TRANSPORTATION (a),
AND LIFO CHARGE (b)
26,261
77.4
26,475
78.2
61,385
77.5
61,555
77.9
OPERATING, GENERAL AND ADMINISTRATIVE (a)
5,886
17.4
6,935
20.5
13,490
17.0
14,328
18.1
RENT
199
0.6
206
0.6
469
0.6
470
0.6
DEPRECIATION AND AMORTIZATION
751
2.2
716
2.1
1,728
2.2
1,674
2.1
OPERATING PROFIT (LOSS)
815
2.4
(479)
(1.4)
2,109
2.7
991
1.3
OTHER INCOME (EXPENSE)
INTEREST EXPENSE
(84)
(0.2)
(93)
(0.3)
(207)
(0.3)
(247)
(0.3)
NON-SERVICE COMPONENT OF COMPANY-SPONSORED
PENSION PLAN BENEFITS
3
-
8
-
6
-
17
-
(LOSS) GAIN ON INVESTMENTS
(121)
(0.4)
367
1.1
(105)
(0.1)
290
0.4
NET EARNINGS (LOSS) BEFORE INCOME TAX EXPENSE
613
1.8
(197)
(0.6)
1,803
2.3
1,051
1.3
INCOME TAX EXPENSE (BENEFIT)
148
0.4
(18)
(0.1)
382
0.5
268
0.3
NET EARNINGS (LOSS) INCLUDING NONCONTROLLING INTERESTS
465
1.4
(179)
(0.5)
1,421
1.8
783
1.0
NET INCOME (LOSS) ATTRIBUTABLE TO
NONCONTROLLING INTERESTS
(1)
-
1
-
8
-
1
-
NET EARNINGS (LOSS) ATTRIBUTABLE TO THE KROGER CO.
$ 466
1.4 %
$ (180)
(0.5 %)
$ 1,413
1.8 %
$ 782
1.0 %
NET EARNINGS (LOSS) ATTRIBUTABLE TO THE KROGER CO.
PER BASIC COMMON SHARE
$ 0.64
$ (0.25)
$ 1.94
$ 1.08
AVERAGE NUMBER OF COMMON SHARES USED IN
BASIC CALCULATION
723
719
722
718
NET EARNINGS (LOSS) ATTRIBUTABLE TO THE KROGER CO.
PER DILUTED COMMON SHARE
$ 0.64
$ (0.25)
$ 1.93
$ 1.07
AVERAGE NUMBER OF COMMON SHARES USED IN
