01—Abstract
Summary
Summary of the 8-K filed December 5, 2024. Cited figures are marked; the original filing is the authoritative source.
The Kroger Co. reported third quarter 2024 results on December 5, 2024, and narrowed its full-year 2024 guidance ranges.
Total company sales were $33.6 billion, compared to $34.0 billiona a year earlier, reflecting the sale of Kroger Specialty Pharmacy and lower fuel sales. Identical sales without fuel increased 2.3%, operating profit was $828 million (versus $912 million), and diluted EPS was $0.84, while adjusted EPS was $0.98 and adjusted FIFO operating profit was $1,017 million. Management highlighted growth in digital sales of 11% and in total and loyal households.
Kroger has paused its share repurchase program to prioritize de-leveraging following the proposed merger with Albertsons. The net total debt to adjusted EBITDA ratio was 1.21 versus 1.40 a year earlier, against a target range of 2.30 to 2.50. Management noted that the merger is subject to ongoing court rulings in a regulatory challenge, and it stated its commitment to closing the transaction.
Full-year guidance was narrowed: identical sales without fuel is now 1.20% to 1.50% (from 0.75% to 1.75%), adjusted FIFO operating profit is $4.6 to $4.7 billionb (from $4.6 to $4.8 billion), and adjusted EPS is $4.35 to $4.45 (from $4.30 to $4.50). Adjusted free cash flow and capital expenditure guidance were unchanged. The Kroger Specialty Pharmacy sale closed on October 4, 2024, for $464 million.
Management said it reduced third-quarter sales by approximately $340 millionc and will lower annualized sales by approximately $3 billion, with no material effect on operating profit. The filing also discloses year-to-date merger-related costs of $509 million pre-tax (in OG&A) and a net total debt of $9.478 billion as of November 9, 2024, after $10.5 billion of new long-term debt issuance in the year.
02—Key points
Key Highlights
- Third quarter sales were $33.6 billion, down from $34.0 billion, mainly due to the Kroger Specialty Pharmacy sale and lower fuel sales; identical sales without fuel rose 2.3%.
- Diluted EPS was $0.84 versus $0.88 a year earlier; adjusted EPS was $0.98 versus $0.95.
- Operating profit was $828 million versus $912 million; adjusted FIFO operating profit was $1,017 million versus $1,022 million.
- Full-year 2024 guidance was narrowed: identical sales without fuel of 1.20% to 1.50%, adjusted FIFO operating profit of $4.6 to $4.7 billion, and adjusted EPS of $4.35 to $4.45.
- Share repurchases have been paused to prioritize de-leveraging following the proposed Albertsons merger; net total debt to adjusted EBITDA was 1.21 versus 1.40 a year earlier.
- The sale of Kroger Specialty Pharmacy closed October 4, 2024 for $464 million and is expected to lower annualized sales by approximately $3 billion.
- Digital sales grew 11% in the quarter, and management said Our Brands sales growth outpaced total grocery sales growth.
03—Questions
Frequently Asked Questions
Why did Kroger's reported sales decline in the third quarter?
Total company sales were $33.6 billion versus $34.0 billion a year earlier. The filing attributes the decrease to the sale of Kroger Specialty Pharmacy during the quarter, which reduced sales by approximately $340 million, and to lower fuel sales driven by a lower average retail price per gallon. Excluding fuel and Kroger Specialty Pharmacy, sales increased 2.7%.
Did Kroger change its 2024 guidance?
Yes, Kroger narrowed several ranges. Identical sales without fuel moved to 1.20% to 1.50% from 0.75% to 1.75%, adjusted FIFO operating profit to $4.6 to $4.7 billion from $4.6 to $4.8 billion, and adjusted EPS to $4.35 to $4.45 from $4.30 to $4.50. Adjusted free cash flow of $2.5 to $2.7 billion, capital expenditures of $3.6 to $3.8 billion, and the adjusted tax rate change to 22.5% from 23%.
What is Kroger doing with its capital allocation given the Albertsons merger?
Kroger has paused its share repurchase program to prioritize de-leveraging following the proposed merger with Albertsons. It expects to continue paying its quarterly dividend and expects it to increase over time, subject to board approval, and it intends to maintain its investment grade debt rating. Its net total debt to adjusted EBITDA ratio was 1.21, compared with a target range of 2.30 to 2.50.
How much did merger-related costs affect Kroger's results?
Merger-related costs were $186 million pre-tax in the third quarter and $509 million pre-tax year-to-date, recorded in operating, general and administrative expenses. Management excludes these costs from its adjusted measures. Adjusted EPS of $0.98 in the third quarter excludes a $0.20 per share merger-related cost effect.
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