CINCINNATI, Dec. 5, 2024 /PRNewswire/ — The Kroger Co. (NYSE: KR) today reported its third quarter 2024 results, narrowed its guidance range and updated investors on how Kroger is positioned for long-term sustainable growth.
Comments from Chairman and CEO Rodney McMullen:
“Kroger achieved strong sales results in the third quarter led by our pharmacy and digital performance, which reflects the strength and diversity of our model.
We continued to grow total households this quarter by delivering exceptional value for customers, with low prices, personalized offers and great quality Our Brands products, all through a seamless shopping experience. We appreciate our associates for their continued efforts to elevate the customer experience, delivering on our key priorities of full, fresh and friendly.
While we expect the macroeconomic environment to remain uncertain near-term, the strength of our model gives us confidence in our ability to deliver value for customers and invest in our associates, while generating attractive and sustainable returns for shareholders.”
Comments from Chairman and CEO Rodney McMullen on the pending merger with Albertsons:
“As we await the courts’ rulings in the regulatory challenge to the merger, we remain 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.”
Sale of Kroger Specialty Pharmacy
Kroger closed the sale of its specialty pharmacy business on October 4, 2024, for $464 million. The sale reduced total company sales in the third quarter by approximately $340 million, compared to the same period last year, and annualized sales will be approximately $3 billion lower going forward. KSP was a low margin business. As a result, the sale of the business increased both Kroger’s gross margin and operating, general and administrative costs as a rate of sales. It had no material effect on operating profit.
Third Quarter Financial Results
| 3Q24 ($ in millions; except EPS) | 3Q23 ($ in millions; except EPS) | |
| ID Sales* (Table 4) | 2.3 % | (0.6 %) |
| Earnings Per Share | $0.84 | $0.88 |
| Adjusted EPS (Table 6) | $0.98 | $0.95 |
| Operating Profit | $828 | $912 |
| Adjusted FIFO Operating Profit (Table 7) | $1,017 | $1,022 |
| FIFO Gross Margin Rate* | Increased 51 basis points | |
| OG&A Rate* | Increased 22 basis points | |
| * Without fuel and adjustment items, if applicable. |
Total company sales were $33.6 billion in the third quarter, compared to $34.0 billion for the same period last year. The decrease in sales was attributable to the sale of Kroger Specialty Pharmacy during the quarter and to lower fuel sales, which was primarily the result of a lower average retail price per gallon compared to last year. Excluding fuel and Kroger Specialty Pharmacy, sales increased 2.7% compared to the same period last year.
Gross margin was 22.9% of sales for the third quarter. The FIFO gross margin rate, excluding fuel, increased 51 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 the sale of Kroger Specialty Pharmacy, Our Brands performance and lower shrink, partially offset by lower pharmacy margins.
The LIFO charge for the quarter was $4 million, compared to a LIFO charge of $29 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 22 basis points, excluding fuel and adjustment items, compared to the same period last year. This increase in rate was driven by the sale of Kroger Specialty Pharmacy and increased incentive plan costs, 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 1.21 compared to 1.40 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*
Comments from Interim CFO Todd Foley
“Kroger delivered another quarter of strong results that reflect the resilience of our value creation model. As we head into the final quarter of the year, we are narrowing the ranges of identical sales without fuel, adjusted FIFO Operating Profit and adjusted EPS guidance.
Our business is more diverse than ever and our model gives us confidence in our ability to deliver on our guidance, and continue to generate attractive and sustainable returns for shareholders.”
| Guidance as of September 12, 2024 | Guidance as ofDecember 5, 2024 | |
| Identical Sales without fuel | 0.75% – 1.75% | 1.20% – 1.50% |
| Adjusted FIFO Operating Profit | $4.6 – $4.8 billion | $4.6 – $4.7 billion |
| Adjusted net earnings per diluted share | $4.30 – $4.50 | $4.35 – $4.45 |
| Adjusted Free Cash Flow** | $2.5 – $2.7 billion | $2.5 – $2.7 billion |
| Capital expenditures | $3.6 – $3.8 billion | $3.6 – $3.8 billion |
| Adjusted effective tax rate*** | 23 % | 22.5 % |
| * 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. |
Third Quarter 2024 Highlights
Leading with Fresh
- Introduced 226 new Our Brands items
- Announced the top five food trends for 2025
- Released 12 Days of Murray’s Cheese advent calendar featuring a curated collection of cheeses, jams and crackers
Accelerating with Digital
- Increased delivery sales by 18% over last year led by Customer Fulfillment Centers
- Improved Pickup productivity to a record low cost per order supported by the addition of order batching and routing technology in all stores
- Enhanced the Boost by Kroger Plus Membership by including Disney streaming options with an annual membership
Associate Experience
- Celebrated 32 company leaders named 2024 Progressive Grocer GenNext Honorees
- Donated nearly $1 million in associate and company contributions as part of annual giving campaign for charitable causes
- Celebrated the third year of Kroger’s Game Changers program, bringing together female business leaders, entrepreneurs and key community members as part of the LPGA Queen City Championship
Live Our Purpose
- Supported disaster response efforts for those impacted by Hurricane Helene
- Enhanced innovative nutrition scoring system to incorporate more nutritional attributes, making it easier for customers to make healthier food choices
- Celebrated Hunger Action Month with Kroger’s annual campaign to support food banks in our communities
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 420,000 associates who serve over 11 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. To learn more about us, visit our newsroom and investor relations site.
Kroger’s third quarter 2024 ended on November 9, 2024.
