CINCINNATI, Nov. 30, 2023 /PRNewswire/ — The Kroger Co. BB #100073 today reported its third quarter 2023 results and updated investors on how Leading with Fresh and Accelerating with Digital continues to position Kroger for long-term sustainable growth.
Third Quarter Highlights
- Identical Sales without fuel decreased 0.6%; underlying Identical Sales without fuel increased 1.0%(1)
- Operating Profit of $912 million; EPS of $0.88
- Adjusted FIFO Operating Profit of $1,022 million; Adjusted EPS of $0.95
- Achieved strong Adjusted Free Cash Flow leading to a net total debt to adjusted EBITDA ratio of 1.40, compared to a target range of 2.3 to 2.5
- Executed its go-to-market strategy to deliver value for customers
- Grew digital sales 11%
- Increased total and loyal customer households
Comments from Chairman and CEO Rodney McMullen
“Kroger’s third quarter results highlight the strength and diversity of our business model in a challenged operating environment, as strong fuel performance and growth in our alternative profit businesses supported continued adjusted net earnings per diluted share growth.
As consumer spending tightens, we are focused on providing customers with exceptional value. By maintaining our long-term commitment to lower prices, personalized promotions and rewards, we are growing households and increasing loyalty, positioning Kroger for sustainable future growth. We appreciate our associates and continue to invest in wages, benefits and training, which is resulting in continued improvements in our customer experience.
Our model’s strength allows us to navigate many economic environments. We remain committed to balancing investments in associates and greater value for our customers while continuing to generate attractive and sustainable returns for our shareholders.”
Total company sales were $34.0 billion in the third quarter, compared to $34.2 billion for the same period last year. Excluding fuel, sales decreased 0.5% compared to the same period last year.
Gross margin was 22.0% of sales for the third quarter. The FIFO gross margin rate, excluding fuel, increased 3 basis points compared to the same period last year. The increase in the FIFO gross margin rate, excluding fuel, was primarily attributable to Our Brands performance, sourcing benefits and the effect of our terminated agreement with Express Scripts, partially offset by higher shrink and advertising costs, and increased price investments.
The LIFO charge for the quarter was $29 million, compared to a LIFO charge of $152 million for the same period last year. The decreased charge was due to lower expected year over year inflation.
The Operating, General & Administrative rate increased 32 basis points, excluding fuel and adjustment items, compared to the same period last year. The increase in OG&A rate was driven by planned investments in associates, investments in strategic growth initiatives and the effect of our terminated agreement with Express Scripts, partially offset by continued execution of cost savings initiatives and lower incentive plan costs.
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 1.40, compared to 1.61 a year ago (Table 5). The company’s net total debt to adjusted EBITDA ratio target range is 2.30 to 2.50.
Comments from CFO Gary Millerchip
“Kroger delivered another quarter of consistent adjusted net earnings per diluted share growth, demonstrating the strength of our value creation model.
Looking to the rest of the year, we are updating our full-year guidance to reflect the impact of near-term economic pressures and food-at-home disinflation. We now expect full-year identical sales without fuel to be in the range of 0.6% to 1.0% (with underlying growth of 2.1% to 2.5% after adjusting for the effect of Express Scripts), and adjusted FIFO net operating profit to be in the range of $4.9 to $5.0 billion. At the same time, we are confident in our ability to navigate these near-term headwinds and we are raising the lower end of our full-year adjusted net earnings per diluted share guidance range. We now expect adjusted EPS to be between $4.50 to $4.60.
Third Quarter 2023 Highlights
Leading with Fresh
Accelerated Fresh Produce Initiative with a total of 2,053 stores now certified, adding more days of freshness for customers
Added Kroger® Mercado, a Hispanic-inspired brand to the Our Brands’ portfolio
Celebrated six awards earned by Murray’s Cheese varieties at the World Cheese Awards
Committed to increasing local products in stores by 10% following proposed merger with Albertsons Companies
Accelerating with Digital
Increased delivery sales by 20% over last year, led by Kroger Boost and Customer Fulfillment Centers
Celebrated 6th anniversary of one of the Company’s alternative profit businesses, Kroger Precision Marketing
Increased digitally engaged households by 13% compared to last year
Associate Experience
Celebrated 38 company leaders named 2023 Progressive Grocer GenNext Honorees
Hosted career expo event in support of commitment to hiring veterans and their families
Named by Axonify as a 2023 Frontline Champion in recognition of Kroger’s support for frontline associates
Live Our Purpose
Published 2023 ESG Report sharing progress on Kroger’s Zero Hunger | Zero Waste impact plan
Awarded $1 million in grants to Hispanic organizations in honor of Hispanic Heritage Month
Hosted the Kroger Wellness Festival, a two day event celebrating physical, mental and emotional health for the whole family
About Kroger
At The Kroger Co. (NYSE: KR), we are dedicated to our Purpose: to Feed the Human Spirit™. We are, across our family of companies nearly half a million 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 third quarter 2023 ended on November 4, 2023.
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.
