01—Abstract
Summary
Summary of the 10-Q filed June 28, 2024. Cited figures are marked; the original filing is the authoritative source.
The Kroger Co. reported first-quarter 2024 results for the 16 weeks ended May 25, 2024, with sales of $45.27 billiona, up 0.2% from $45.17 billion a year earlier.
Sales without fuel rose 0.6% to $40.31 billionb, and identical sales excluding fuel increased 0.5%. Profitability declined: operating profit fell 12.0% to $1.29 billion, net earnings attributable to Kroger decreased 1.6% to $947 million, and diluted EPS was $1.29 versus $1.32. Adjusted net earnings per diluted share were $1.43, down 5.3%, and adjusted FIFO operating profit was $1.50 billion, down 10.2%.
Results were pressured by lower pharmacy margins, increased promotional price investments, higher OG&A as a percentage of sales, and a decrease in fuel operating profit, partially offset by a lower LIFO charge of $41 millionc versus $99 million. Cash flow and liquidity were solid. Net cash from operating activities was $2.34 billion versus $2.86 billion, and cash and temporary cash investments rose to $2.85 billion from $1.88 billion at fiscal year-end 2023.
Kroger paid $210 milliond in dividends and repurchased $103 million of shares under its 1999 program, while the $1.0 billion September 2022 repurchase authorization remains unused. Total debt was about $12.2 billion, consistent with year-end. Capital investments excluding lease buyouts were $1.23 billion.
The filing is dominated by the pending merger with Albertsons Companies, Inc., which faces an FTC administrative proceeding and federal and state litigation seeking to block it. The amended divestiture agreement with C&S Wholesale Grocers covers 579 stores in total, and the bridge facility commitment was reduced to $10.65 billion.
Kroger also agreed to sell its Kroger Specialty Pharmacy business to CarelonRx for about $485 million, expected to close in the second half of 2024. The filing discloses an interim Chief Financial Officer and contingent opioid settlement liabilities of $1.41 billion.
02—Key points
Key Highlights
- Sales rose 0.2% to $45.27 billion, with sales excluding fuel up 0.6% to $40.31 billion and identical sales excluding fuel up 0.5%.
- Operating profit fell 12.0% to $1.29 billion, and adjusted FIFO operating profit fell 10.2% to $1.50 billion.
- Diluted EPS was $1.29, down 2.3% from $1.32; adjusted diluted EPS was $1.43, down 5.3% from $1.51.
- Operating cash flow was $2.34 billion versus $2.86 billion, and cash and temporary cash investments rose to $2.85 billion.
- Merger-related costs of $175 million were recorded in OG&A, and the FTC and state litigation seeks to block the pending Albertsons merger.
- The Kroger Specialty Pharmacy sale to CarelonRx for about $485 million is expected to complete in the second half of 2024.
- Dividends paid were $210 million, and the $1.0 billion share repurchase authorization remains unused under a pause since the third quarter of 2022.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2025filed June 28, 2024Financial Statements
Q1 FY2025 against Q1 FY2024
| Line item | Q1 FY2025Q1 FY2024 | Change |
|---|---|---|
| Revenue | $45.27B$45.16B | +0.2% |
| Operating Income | $1.29B$1.47B | −12.0% |
| Interest Expense | $123.00M$153.00M | −19.6% |
| Net Income | $956.00M$962.00M | −0.6% |
| EPS (Basic) | $1.30$1.33 | −2.3% |
| EPS (Diluted) | $1.29$1.32 | −2.3% |
| Shares Outstanding (Basic) | 721.00M717.00M | +0.6% |
| Shares Outstanding (Diluted) | 727.00M724.00M | +0.4% |
05—Questions
Frequently Asked Questions
Why did operating profit decline despite higher sales?
Operating profit fell to $1.29 billion from $1.47 billion, mainly because OG&A rose as a percentage of sales due to planned associate investments, higher incentive plan costs and the $175 million merger-related charge. A decline in fuel operating profit and a lower FIFO gross margin rate, driven by lower pharmacy margins and promotional price investments, also contributed. A lower LIFO charge partially offset these pressures.
What is the status of the Albertsons merger?
The merger agreement from October 13, 2022 remains pending. The FTC instituted an administrative proceeding to prohibit it and sued in federal court in Oregon for a preliminary injunction, with the administrative trial scheduled for July 31, 2024 and the preliminary injunction hearing for August 26, 2024. Washington and Colorado have also filed suits, and private plaintiffs have sought to enjoin the deal. The outside date was extended in 30-day increments and may run to October 9, 2024.
How is Kroger funding the proposed merger?
Kroger has a $10.65 billion senior unsecured bridge term loan commitment, reduced from $17.4 billion, and $4.75 billion of term loan facilities under a credit agreement executed November 9, 2022. The filing states that the company also expects to use senior notes issuances, commercial paper, bank credit facility capacity and cash on hand. The bridge commitments will be reduced as alternative financing is secured.
What is the status of opioid litigation liabilities?
Kroger agreed in principle to pay up to $1.2 billion to states and subdivisions and $36 million to Native American tribes, plus about $177 million in attorneys' fees, and recognized a $1.41 billion charge in 2023. As of May 25, 2024, $284 million was recorded in other current liabilities and $1.13 billion in other long-term liabilities. The first annual $138 million payment was made into escrow in the first quarter, and the company says it cannot predict whether the agreement will become effective.
Is Kroger still buying back shares?
Kroger repurchased $103 million of shares, about 1.9 million shares at an average price of $54.98, under its 1999 program, which is limited to proceeds from employee option exercises. Repurchases under the $1.0 billion September 2022 program have not resumed, as the company paused that program in the third quarter of 2022 to prioritize de-leveraging after the proposed Albertsons merger.
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