01—Abstract
Summary
Summary of the 10-Q filed September 15, 2023. Cited figures are marked; the original filing is the authoritative source.
The Kroger Co. reported a second-quarter 2023 net loss attributable to The Kroger Co. of $(180) million, or $(0.25) per diluted share, compared with net earnings of $731 milliona, or $1.00 per diluted share, in the second quarter of 2022.
The result reflects opioid settlement charges of $1,413 millionb ($1,113 million net of tax) recognized in the quarter. Excluding the Adjusted Items, adjusted net earnings attributable to The Kroger Co. were $699 million, or $0.96 per diluted share, versus $0.90 a year earlier. Sales were $33,853 million, down from $34,638 million, with sales excluding fuel up 1.1%.
Operating loss was $(479) million for the quarter, while adjusted FIFO operating profit was $989 millionc. For the first two quarters of 2023, sales were $79,018 million and net earnings attributable to The Kroger Co. were $782 million, or $1.07 per diluted share. Adjusted net earnings were $2.47 per diluted share.
Cash provided by operating activities rose to $4,364 milliond from $2,427 million, and cash and temporary cash investments increased to $2,420 million at August 12, 2023. Total debt including finance leases decreased by $587 million to about $12.8 billion, and the company paid $376 million in dividends. Management now expects identical sales without fuel to land at the low end of its full-year guidance range.
The filing also details the proposed merger with Albertsons Companies, Inc. and a September 8, 2023 agreement to sell 413 stores, eight distribution centers and related assets to C&S Wholesale Grocers, LLC for approximately $1.9 billion in cash. The merger is expected to close in early 2024, subject to regulatory clearance. Investors should weigh the opioid settlement obligations and the pending merger financing and closing conditions against the company's underlying operating performance.
02—Key points
Key Highlights
- Net loss attributable to The Kroger Co. of $(180) million, or $(0.25) per diluted share, in the second quarter of 2023, versus net earnings of $731 million, or $1.00 per diluted share, a year earlier.
- Opioid settlement charges of $1,413 million ($1,113 million net of tax) recognized in the second quarter of 2023 under the nationwide opioid settlement framework.
- Adjusted net earnings of $0.96 per diluted share for the second quarter of 2023, compared with $0.90 for the second quarter of 2022; adjusted net earnings were $2.47 per diluted share for the first two quarters.
- Sales of $33,853 million for the second quarter, down from $34,638 million, with sales excluding fuel increasing 1.1%.
- Cash provided by operating activities of $4,364 million for the first two quarters of 2023, compared with $2,427 million a year earlier.
- Cash and temporary cash investments rose to $2,420 million at August 12, 2023, and total debt including finance leases decreased by $587 million to about $12.8 billion.
- Pending merger with Albertsons Companies, Inc. at $34.10 per share (adjusted to $27.25 after a special dividend), with a September 2023 agreement to sell 413 stores to C&S Wholesale Grocers, LLC for approximately $1.9 billion in cash.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2024filed September 15, 2023Financial Statements
Q2 FY2024 against Q2 FY2023
| Line item | Q2 FY2024Q2 FY2023 | Change |
|---|---|---|
| Revenue | $33.85B$34.64B | −2.3% |
| Operating Income | -$479.00M$954.00M | −150.2% |
| Interest Expense | $93.00M$127.00M | −26.8% |
| Net Income | -$179.00M$732.00M | −124.5% |
| EPS (Basic) | $-0.25$1.01 | −124.8% |
| EPS (Diluted) | $-0.25$1.00 | −125.0% |
| Shares Outstanding (Basic) | 719.00M716.00M | +0.4% |
| Shares Outstanding (Diluted) | 719.00M725.00M | −0.8% |
05—Questions
Frequently Asked Questions
Why did Kroger report a net loss in the second quarter of 2023?
The loss was driven by opioid settlement charges of $1,413 million ($1,113 million net of tax) recognized in the quarter under the nationwide opioid settlement framework. Operating loss for the quarter was $(479) million. Excluding these and other Adjusted Items, adjusted net earnings were $699 million, or $0.96 per diluted share.
How much will Kroger pay under the opioid settlement?
The agreement in principle includes payments of approximately $1,236 million over 11 years and $177 million over 6 years, in equal installments. As of August 12, 2023, Kroger recorded $142 million in other current liabilities and $1,271 million in other long-term liabilities for the estimated settlement. The company cannot yet predict whether the agreement will become effective.
What is the status of the Albertsons merger and related divestiture?
The merger agreement, announced October 13, 2022, is expected to close in early 2024, subject to regulatory clearance and other customary conditions. On September 8, 2023, Kroger and Albertsons agreed to sell 413 stores, eight distribution centers, two offices and certain brands to C&S Wholesale Grocers, LLC for approximately $1,900 million in cash, subject to FTC clearance. The merger agreement's Outside Date is January 13, 2024, extendable by up to 270 days in the aggregate, and a $600 million termination fee applies in certain circumstances.
How is Kroger's balance sheet and liquidity positioned?
Cash and temporary cash investments were $2,420 million at August 12, 2023, up from $1,015 million at fiscal year-end 2022. Total debt including finance leases decreased by $587 million to about $12.8 billion. The company had no outstanding commercial paper or revolver borrowings, and it has a $2.75 billion revolving credit facility plus a $1.25 billion accordion feature. The company also has a $17.4 billion bridge facility commitment, reduced to $12.65 billion after the term loan agreement.
What did management say about the outlook and share repurchases?
Management expects identical sales without fuel to be at the low end of its full-year guidance range and believes it can still achieve its 2023 adjusted FIFO operating profit and adjusted net earnings per diluted share guidance. Share repurchases were paused in the third quarter of 2022 to prioritize de-leveraging, and only $47 million of shares were repurchased in the first two quarters of 2023 under a program tied to option exercise proceeds. No shares have been repurchased under the $1.0 billion September 2022 authorization.
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