01—Abstract
Summary
Summary of the 10-K filed April 2, 2024. Cited figures are marked; the original filing is the authoritative source.
The Kroger Co. reported fiscal 2023 (53 weeks ended February 3, 2024) sales of $150.04 billiona, up 1.2% from $148.26 billion in 2022, while net earnings attributable to The Kroger Co. declined 3.6% to $2.16 billion.
Diluted EPS was $2.96b, down 3.3%, but excluding adjusted items and the 53rd week (the "Extra Week"), adjusted EPS rose 7.8% to $4.56. The decline in reported results was driven primarily by $1.5 billion of opioid settlement charges, and operating profit fell 25.0% to $3.10 billion. Cash flow from operations rose to $6.79 billion from $4.50 billion, and the company returned $796 million through dividends.
Identical sales excluding fuel grew 0.9%, but would have grown 2.3% without the reduction in pharmacy sales from the termination of the Express Scripts agreement. The filing is dominated by the pending merger with Albertsons, agreed October 13, 2022, at $34.10c per share before a $6.85 special dividend adjustment (expected to be $27.25). Kroger and Albertsons agreed in September 2023 to a divestiture plan with C&S Wholesale Grocers for 413 stores and related assets for approximately $1.9 billion.
The FTC instituted an administrative proceeding on February 26, 2024 and sued in federal court to block the merger, and state attorneys general in Washington and Colorado have also sued. The filing lists a scheduled preliminary injunction hearing in the federal case for August 26, 2024. Share repurchases were paused in 2022, with $1.0 billiond remaining under the September 2022 authorization, and total debt fell $1.2 billion to $12.2 billion.
Leverage remains within the company's target range of 2.30 to 2.50 net total debt to adjusted EBITDA, which the company says it is committed to maintaining along with its investment grade rating. Investors should weigh the strong cash generation and dividend growth against the regulatory uncertainty surrounding the Albertsons transaction, the ongoing opioid settlement payments, and the lower reported operating profit.
02—Key points
Key Highlights
- Sales rose 1.2% to $150.04 billion; sales excluding fuel and the Extra Week grew 1.1% to $130.99 billion.
- Net earnings attributable to The Kroger Co. fell 3.6% to $2.16 billion; diluted EPS of $2.96 declined 3.3%.
- Adjusted diluted EPS excluding the Extra Week rose 7.8% to $4.56, reflecting a lower LIFO charge and lower interest expense.
- Operating profit fell 25.0% to $3.10 billion, reflecting $1.5 billion of opioid settlement charges.
- Cash flow from operations increased to $6.79 billion from $4.50 billion; dividends paid rose to $796 million ($1.10 per share).
- The proposed Albertsons merger faces an FTC administrative proceeding and federal and state lawsuits; a preliminary injunction hearing is set for August 26, 2024.
- Total debt decreased $1.2 billion to $12.2 billion, with a leverage ratio of 1.10 to 1 under the credit facility covenant.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2024filed April 2, 2024Financial Statements
FY2024 against FY2023
| Line item | FY2024FY2023 | Change |
|---|---|---|
| Revenue | $150.04B$148.26B | +1.2% |
| Operating Income | $3.10B$4.13B | −25.0% |
| Interest Expense | $441.00M$535.00M | −17.6% |
| Net Income | $2.17B$2.25B | −3.6% |
| EPS (Basic) | $2.99$3.10 | −3.5% |
| EPS (Diluted) | $2.96$3.06 | −3.3% |
| Shares Outstanding (Basic) | 718.00M718.00M | 0.0% |
| Shares Outstanding (Diluted) | 725.00M727.00M | −0.3% |
05—Questions
Frequently Asked Questions
Why did reported earnings decline in fiscal 2023 even though adjusted earnings grew?
Reported net earnings per diluted share fell to $2.96 from $3.06 mainly because of $1.6 per diluted share in losses tied to opioid settlement charges, which totaled $1.5 billion in operating charges. Excluding adjusted items and the 53rd week, adjusted EPS rose to $4.56 from $4.23, driven primarily by a lower LIFO charge and lower interest expense.
What is the status of the proposed Albertsons merger?
The merger agreement from October 13, 2022 has not closed. On February 26, 2024, the FTC instituted an administrative proceeding to prohibit it and sued in federal court for a preliminary injunction, joined by nine states. Washington and Colorado have also sued, and private plaintiffs filed suit in California. A temporary restraining order prevents closing pending the court's ruling, and the outside date may be extended to October 9, 2024. A $600 million termination fee applies in certain circumstances.
How is Kroger treating share repurchases and dividends?
Share repurchases were paused in the third quarter of 2022 to prioritize de-leveraging after the Albertsons merger announcement, and only $62 million was repurchased in 2023 under the employee-option program. The company has $1.0 billion remaining under its September 2022 authorization. Dividends continued, with a quarterly dividend of $0.29 per share declared in March 2024, and the company expects comparable dividends that increase over time.
What is driving the company's sales and identical sales trends?
Identical sales excluding fuel grew 0.9% in 2023. The filing states that identical sales would have grown 2.3% without the approximately $1.8 billion reduction in pharmacy sales from the termination of the Express Scripts agreement effective December 31, 2022. Digital sales reached $12 billion, with excluding-Extra-Week growth of 12%, led by Delivery solutions, which grew 25%.
06—Continue