How did Kroger perform in the second quarter of 2024?

Sales were $33.9 billion, flat with the prior-year quarter, and identical sales without fuel rose 1.2%. Operating profit was $815 million and diluted EPS was $0.64. Adjusted EPS was $0.93, compared with $0.96 a year earlier.

Did Kroger change its full-year 2024 outlook?

Kroger reaffirmed Adjusted FIFO operating profit of $4.6–$4.8 billion, Adjusted EPS of $4.30–$4.50, and Adjusted free cash flow of $2.5–$2.7 billion. It raised the low end of its identical sales without fuel guidance by 50 basis points, to 0.75%–1.75%, and set capital expenditures at $3.6–$3.8 billion.

What drove the change in gross and operating expense margins?

The FIFO gross margin rate, excluding fuel, increased 42 basis points, driven mainly by favorable product mix including Our Brands, lower shrink, and sourcing benefits, partly offset by lower pharmacy margins. The OG&A rate, excluding fuel and adjustment items, increased 65 basis points, driven by associate wage investments, higher incentive plan costs, hurricane-related costs, and higher general liability claim costs.

KR 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed September 12, 2024. Cited figures are marked; the original filing is the authoritative source.

The Kroger Co. (NYSE: KR) furnished a press release with this Form 8-K reporting its second quarter 2024 results, which ended August 17, 2024.

Sales were $33.9 billion^a, flat with the prior-year quarter, and identical sales without fuel increased 1.2%. Operating profit was $815 million, compared with an operating loss of $479 million in the second quarter of 2023, which included a $1.4 billion opioid settlement charge. Diluted EPS was $0.64, and Adjusted EPS was $0.93, versus $0.96 a year earlier.

Adjusted FIFO operating profit was $984 million^b, compared with $989 million in the prior-year quarter. The FIFO gross margin rate, excluding fuel, increased 42 basis points, while the OG&A rate, excluding fuel and adjustment items, increased 65 basis points. Kroger reaffirmed its full-year 2024 guidance for Adjusted FIFO operating profit of $4.6 to $4.8 billion, Adjusted EPS of $4.30 to $4.50, and Adjusted free cash flow of $2.5 to $2.7 billion.

It updated identical sales without fuel guidance to 0.75% to 1.75%, raising the low end by 50 basis points, and set capital expenditures at $3.6 to $3.8 billion^c. The company reported a net total debt to adjusted EBITDA ratio of 1.24, versus 1.31 a year earlier, against a target range of 2.30 to 2.50. It has paused share repurchases to prioritize de-leveraging following the proposed merger with Albertsons, and it expects to continue paying its quarterly dividend.

A subsequent event disclosed in the release is a completed $10.5 billion^d debt offering. Its net proceeds are expected to partially fund the cash consideration for the proposed Albertsons merger, and a portion is subject to special mandatory redemption if the merger does not close. Management said it remains committed to closing the merger, noting that the FTC's preliminary injunction hearing was nearing its close.

02—Key points

Key Highlights

Second quarter sales of $33.9 billion were flat year over year; identical sales without fuel rose 1.2%.
Operating profit of $815 million compared with an operating loss of $479 million a year earlier, which included a $1.4 billion opioid settlement charge.
Diluted EPS was $0.64; Adjusted EPS was $0.93 versus $0.96 in the prior-year quarter.
Adjusted FIFO operating profit was $984 million versus $989 million a year earlier.
Full-year 2024 Adjusted FIFO operating profit ($4.6–$4.8 billion) and Adjusted EPS ($4.30–$4.50) guidance was reaffirmed; identical sales without fuel guidance was raised at the low end to 0.75%–1.75%.
Share repurchases are paused to prioritize de-leveraging; net total debt to adjusted EBITDA was 1.24 versus 1.31 a year earlier.
A $10.5 billion debt offering was completed, with proceeds expected to partially fund the cash consideration for the proposed Albertsons merger.

03—Questions

Frequently Asked Questions

How did Kroger perform in the second quarter of 2024?
Sales were $33.9 billion, flat with the prior-year quarter, and identical sales without fuel rose 1.2%. Operating profit was $815 million and diluted EPS was $0.64. Adjusted EPS was $0.93, compared with $0.96 a year earlier.
Did Kroger change its full-year 2024 outlook?
Kroger reaffirmed Adjusted FIFO operating profit of $4.6–$4.8 billion, Adjusted EPS of $4.30–$4.50, and Adjusted free cash flow of $2.5–$2.7 billion. It raised the low end of its identical sales without fuel guidance by 50 basis points, to 0.75%–1.75%, and set capital expenditures at $3.6–$3.8 billion.
Why did Kroger pause its share repurchase program?
The filing states that Kroger paused its share repurchase program to prioritize de-leveraging following the proposed merger with Albertsons. The company's net total debt to adjusted EBITDA ratio was 1.24, against a target range of 2.30 to 2.50.
What is the $10.5 billion debt offering for?
The company completed the offering after the quarter. The net proceeds are expected to partially fund the cash consideration for the proposed Albertsons merger. A portion of the proceeds is subject to a special mandatory redemption if the merger does not close.
What drove the change in gross and operating expense margins?
The FIFO gross margin rate, excluding fuel, increased 42 basis points, driven mainly by favorable product mix including Our Brands, lower shrink, and sourcing benefits, partly offset by lower pharmacy margins. The OG&A rate, excluding fuel and adjustment items, increased 65 basis points, driven by associate wage investments, higher incentive plan costs, hurricane-related costs, and higher general liability claim costs.

04—Continue

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