Kroger Reports First Quarter 2024 Results and Reaffirms Guidance

1Q24 ($ in millions; except EPS)

1Q23 ($ in millions; except EPS)

ID Sales* (Table 4)

0.5 %

3.5 %

Earnings Per Share

$1.29

$1.32

Adjusted EPS (Table 6)

$1.43

$1.51

Operating Profit

$1,294

$1,470

Adjusted FIFO Operating
Profit (Table 7)

$1,499

$1,669

FIFO Gross Margin Rate*

Decreased 7 basis points

OG&A Rate*

Increased 22 basis points

* Without fuel and adjustment items, if applicable.

* Without adjusted items, if applicable. Kroger is unable to provide a full reconciliation of the GAAP and non-GAAP measures used in 2024 guidance without unreasonable effort because it is not possible to predict certain of our adjustment items with a reasonable degree of certainty. This information is dependent upon future events and may be outside of our control and its unavailability could have a significant impact on 2024 GAAP financial results. 

** Adjusted free cash flow excludes planned payments related to the restructuring of multi-employer pension plans, payments related to opioid settlements and merger-related expenses.

*** The adjusted tax rate reflects typical tax adjustments and does not reflect changes to the rate from the completion of income tax audit examinations and changes in tax laws, which cannot be predicted.

Table 1.
THE KROGER CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
(unaudited)

FIRST QUARTER

2024

2023

SALES

$     45,269

100.0 %

$     45,165

100.0 %

OPERATING EXPENSES

MERCHANDISE COSTS, INCLUDING ADVERTISING,

WAREHOUSING AND TRANSPORTATION (a),

AND LIFO CHARGE (b)

35,124

77.6

35,080

77.7

OPERATING, GENERAL AND ADMINISTRATIVE (a)

7,604

16.8

7,393

16.4

RENT

269

0.6

265

0.6

DEPRECIATION AND AMORTIZATION

978

2.1

957

2.1

OPERATING PROFIT

1,294

2.9

1,470

3.3

OTHER INCOME (EXPENSE)

INTEREST EXPENSE

(123)

(0.3)

(153)

(0.3)

NON-SERVICE COMPONENT OF COMPANY-SPONSORED

PENSION PLAN BENEFITS

4

-

9

-

GAIN (LOSS) ON INVESTMENTS

16

-

(0.2)

NET EARNINGS BEFORE INCOME TAX EXPENSE

1,191

2.6

1,248

2.8

INCOME TAX EXPENSE

235

0.5

286

0.6

NET EARNINGS INCLUDING NONCONTROLLING INTERESTS

956

2.1

962

2.1

NET INCOME ATTRIBUTABLE TO

NONCONTROLLING INTERESTS

9

-

-

-

NET EARNINGS ATTRIBUTABLE TO THE KROGER CO.

$         947

2.1 %

$         962

2.1 %

NET EARNINGS ATTRIBUTABLE TO THE KROGER CO.

PER BASIC COMMON SHARE

$        1.30

$        1.33

AVERAGE NUMBER  OF COMMON SHARES USED IN

BASIC CALCULATION

721

717

NET EARNINGS ATTRIBUTABLE TO THE KROGER CO.

PER DILUTED COMMON SHARE

$        1.29

$        1.32

AVERAGE NUMBER OF COMMON SHARES USED IN

DILUTED CALCULATION

727

724

DIVIDENDS DECLARED PER COMMON SHARE

$        0.29

$        0.26

Note:

Certain percentages may not sum due to rounding.

Note:

The Company defines First-In First-Out (FIFO) gross profit as sales minus merchandise costs, including advertising, warehousing 
and transportation, but excluding the Last-In First-Out (LIFO) charge.

The Company defines FIFO gross margin as FIFO gross profit divided by sales.

The Company defines FIFO operating profit as operating profit excluding the LIFO charge.

The Company defines FIFO operating margin as FIFO operating profit divided by sales.

The above FIFO financial metrics are important measures used by management to evaluate operational effectiveness.  Management
believes these FIFO financial metrics are useful to investors and analysts because they measure our day-to-day operational effectiveness.

(a)

Merchandise costs ("COGS") and operating, general and administrative expenses ("OG&A") exclude depreciation and amortization
expense and rent expense which are included in separate expense lines.

(b)

LIFO charges of $41 and $99 were recorded in the first quarters of 2024 and 2023, respectively. 

Table 2.

THE KROGER CO.

CONSOLIDATED BALANCE SHEETS

(in millions)

(unaudited)

May 25,

May 20,

2024

2023

ASSETS

Current Assets

     Cash

$                  345

$                  241

     Temporary cash investments

2,501

2,391

     Store deposits in-transit

1,226

1,143

     Receivables

1,968

1,766

     Inventories

6,694

7,030

     Assets held for sale

607

-

     Prepaid and other current assets

684

633

       Total current assets

14,025

13,204

Property, plant and equipment, net

25,537

24,935

Operating lease assets

6,695

6,659

Intangibles, net

864

893

Goodwill

2,673

2,916

Other assets

1,647

1,586

       Total Assets

$             51,441

$             50,193

LIABILITIES AND SHAREOWNERS' EQUITY

Current Liabilities

     Current portion of long-term debt including obligations

     under finance leases

$                  198

$               1,319

     Current portion of operating lease liabilities

665

664

     Accounts payable

10,777

10,450

     Accrued salaries and wages

1,208

1,130

     Liabilities held for sale

242

-

     Other current liabilities

3,150

3,567

       Total current liabilities

16,240

17,130

Long-term debt including obligations under finance leases

12,021

12,114

Noncurrent operating lease liabilities

6,412

6,353

Deferred income taxes

1,535

1,694

Pension and postretirement benefit obligations

386

427

Other long-term liabilities

2,434

1,595

       Total Liabilities

39,028

39,313

Shareowners' equity

12,413

10,880

       Total Liabilities and Shareowners' Equity

$             51,441

$             50,193

Total common shares outstanding at end of period

722

718

Total diluted shares year-to-date

727

724

Note:

The Company reclassified $3.1 billion of liabilities from other current liabilities to accounts
payable on the Consolidated Balance Sheet for the quarter ended May 20, 2023 to conform
to the current year presentation. This reclassification was made to the Consolidated
Balance Sheet to more accurately present these current liabilities. A similar reclassification
was made to the Consolidated Statement of Cash Flows resulting in a change to accounts
payable and accrued expenses within net cash provided by operating activities for the
quarter ended May 20, 2023.

Table 3.

THE KROGER CO.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)

YEAR-TO-DATE

2024

2023

CASH FLOWS FROM OPERATING ACTIVITIES:

Net earnings including noncontrolling interests

$               956

$               962

Adjustments to reconcile net earnings including noncontrolling

interests to net cash provided by operating activities:

Depreciation and amortization

978

957

Operating lease asset amortization

187

188

LIFO charge

41

99

Stock-based employee compensation

57

49

Deferred income taxes

(64)

(5)

Gain on the sale of assets

(9)

(41)

(Gain) loss on investments

(16)

78

Other

19

73

Changes in operating assets and liabilities:

Store deposits in-transit

(11)

(16)

Receivables

(102)

274

Inventories

225

419

Prepaid and other current assets

(70)

82

Accounts payable

622

200

Accrued expenses

(465)

(416)

Income taxes receivable and payable

180

198

Operating lease liabilities

(137)

(215)

Other

(66)

(26)

Net cash provided by operating activities

2,325

2,860

CASH FLOWS FROM INVESTING ACTIVITIES:

Payments for property and equipment, including payments for lease buyouts

(1,304)

(1,028)

Proceeds from sale of assets

304

86

Other

(14)

(5)

Net cash used by investing activities

(1,014)

(947)

CASH FLOWS FROM FINANCING ACTIVITIES:

Payments on long-term debt including obligations under finance leases

(54)

(62)

Dividends paid

(210)

(188)

Proceeds from issuance of capital stock

85

23

Treasury stock purchases

(103)

(29)

Other

(66)

(40)

Net cash used by financing activities

(348)

(296)

NET INCREASE IN CASH AND TEMPORARY

CASH INVESTMENTS

963

1,617

CASH AND TEMPORARY CASH INVESTMENTS:

BEGINNING OF YEAR

1,883

1,015

END OF PERIOD

$            2,846

$            2,632

Reconciliation of capital investments:

Payments for property and equipment, including payments for lease buyouts

$           (1,304)

$           (1,028)

Payments for lease buyouts

37

-

Changes in construction-in-progress payables

37

(71)

Total capital investments, excluding lease buyouts

$           (1,230)

$           (1,099)

Disclosure of cash flow information:

Cash paid during the year for interest

$                 70

$               164

Cash paid during the year for income taxes

$               119

$                 92

Table 4. Supplemental Sales Information

(in millions, except percentages)

(unaudited)

Items identified below should not be considered as alternatives to sales or any other GAAP measure of performance. Identical
sales is an industry-specific measure, and it is important to review it in conjunction with Kroger's financial results reported in
accordance with GAAP. Other companies in our industry may calculate identical sales differently than Kroger does, limiting the
comparability of the measure.

IDENTICAL SALES (a)

FIRST QUARTER

2024

2023

EXCLUDING FUEL

$

38,900

$

38,704

EXCLUDING FUEL

0.5 %

3.5 %

(a)

Kroger defines identical sales, excluding fuel, as sales to retail customers, including sales from all departments
at identical supermarket locations, Kroger Specialty Pharmacy businesses, jewelry and ship-to-home solutions.
Kroger defines a supermarket as identical when it has been in operation without expansion or relocation for five
full quarters.  Kroger defines Kroger Specialty Pharmacy businesses as identical when physical locations have
been in operation continuously for five full quarters and discontinued patient therapies are excluded from the
identical sales calculation starting in the quarter of transfer or termination.  We define Kroger Delivery identical
sales powered by Ocado based on geography.  We include Kroger Delivery sales powered by Ocado as identical
if the delivery occurs in an existing Kroger Supermarket geography.  If the Kroger Delivery sales powered by Ocado
occur in a new geography, these sales are included as identical when deliveries have occurred to the new geography
for five full quarters. For the first quarter of 2024, Kroger Specialty Pharmacy businesses were not included in identical
sales due to being classified as held for sale.

Table 5.  Reconciliation of Net Total Debt and
Net Earnings Attributable to The Kroger Co. to Adjusted EBITDA
(in millions, except for ratio)
(unaudited)

The items identified below should not be considered an alternative to any GAAP measure of performance or access to liquidity.  Net total debt to
adjusted EBITDA is an important measure used by management to evaluate the Company's access to liquidity.  The items below should be
reviewed in conjunction with Kroger's financial results reported in accordance with GAAP.

The following table provides a reconciliation of net total debt.

May 25,

May 20,

2024

2023

Change

Current portion of long-term debt including obligations

   under finance leases

$                    198

$                 1,319

$     (1,121)

Long-term debt including obligations under finance leases

12,021

12,114

(93)

     Total debt

12,219

13,433

(1,214)

Less: Temporary cash investments

2,501

2,391

110

     Net total debt

$                 9,718

$               11,042

$     (1,324)

The following table provides a reconciliation from net earnings attributable to The Kroger Co. to adjusted EBITDA, as defined in the Company's
credit agreement, on a rolling four quarter 52-week basis.

May 25,

May 20,

2024

2023

Net earnings attributable to The Kroger Co.

$                 2,149

$                 2,542

LIFO charge

55

632

Depreciation and amortization

3,146

3,032

Interest expense

411

511

Income tax expense

616

793

Adjustment for pension plan withdrawal liabilities

-

25

Adjustment for (gain) loss on investments

(245)

274

Adjustment for Home Chef contingent consideration

-

13

Adjustment for merger related costs (a)

450

85

Adjustment for opioid settlement charges (b)

1,413

147

Adjustment for goodwill and fixed asset impairment charges related to Vitacost.com

-

164

53rd week EBITDA adjustment

(187)

-

Other

(14)

(7)

Adjusted EBITDA

$                 7,794

$                 8,211

Net total debt to adjusted EBITDA ratio on a 52-week basis

1.25

1.34

(a) 

Merger related costs primarily include third party professional fees and credit facility fees associated with the proposed merger
with Albertsons Companies, Inc.

(b)

Opioid settlement charges include settlements with the nationwide opioid settlement framework and the States of West Virginia
and New Mexico.

Table 6. Net Earnings Per Diluted Share Excluding the Adjustment Items

(in millions, except per share amounts)

(unaudited)

The purpose of this table is to better illustrate comparable operating results from our ongoing business, after removing the effects on net earnings per diluted common share for certain items described below.  Adjusted net earnings and adjusted net earnings per diluted share are useful metrics to investors and analysts because they present more accurately year-over-year comparisons for net earnings and net earnings per diluted share because adjusted items are not the result of normal operations.  Items identified in this table should not be considered alternatives to net earnings attributable to The Kroger Co. or any other GAAP measure of performance.  These items should not be reviewed in isolation or considered substitutes for the Company's financial results as reported in accordance with GAAP.  Due to the nature of these items, as further described below, it is important to identify these items and to review them in conjunction with the Company's financial results reported in accordance with GAAP.

The following table summarizes items that affected the Company's financial results during the periods presented.

2024

2023

Net earnings attributable to The Kroger Co.

$

947

$

962

Adjustment for (gain) loss on investments (a)(b)

(12)

59

Adjustment for merger related costs (a)(c)

143

34

Adjustment for opioid settlement charges (a)(d)

-

49

Held for sale income tax adjustment

(31)

-

2024 and 2023 Adjustment Items

100

142

Net earnings attributable to The Kroger Co.

excluding the adjustment items above

$

1,047

$

1,104

Net earnings attributable to The Kroger Co.

per diluted common share

$

1.29

$

1.32

Adjustment for (gain) loss on investments (e)

(0.02)

0.08

Adjustment for merger related costs (e)

0.20

0.05

Adjustment for opioid settlement charges (e)

-

0.06

Held for sale income tax adjustment (e)

(0.04)

-

2024 and 2023 Adjustment Items

0.14

0.19

Net earnings attributable to The Kroger Co. per

diluted common share excluding the adjustment items above

$

1.43

$

1.51

Average number of common shares used in

diluted calculation

727

724

Table 6. Net Earnings Per Diluted Share Excluding the Adjustment Items (continued)

(in millions, except per share amounts)

(unaudited)

(a)

The amounts presented represent the after-tax effect of each adjustment.

(b)

The pre-tax adjustments for (gain) loss on investments were $(16) and $78 in the first quarters of 2024 and 2023, respectively. 

(c)

The pre-tax adjustments to OG&A expenses for merger-related costs were $175 and $40 in the first quarters of 2024 and 2023, respectively.

(d)

The pre-tax adjustment to OG&A expenses for opioid settlement charges was $62.

(e)

The amounts presented represent the net earnings (loss) per diluted common share effect of each adjustment.

Note:

2024 First Quarter Adjustment Items include adjustments for the gain on investments, merger related costs and held for sale income tax. 

2023 First Quarter Adjustment Items include adjustments for the loss on investments, merger related costs and opioid settlement charges. 

Table 7. Operating Profit Excluding the Adjustment Items

(in millions)

(unaudited)

The purpose of this table is to better illustrate comparable operating results from our ongoing business, after removing the effects on operating profit for certain
items described below.  Adjusted FIFO operating profit is a useful metric to investors and analysts because it presents more accurately year-over-year comparisons
for operating profit because adjusted items are not the result of normal operations.  Items identified in  this table should not be considered alternatives to operating
profit or any other GAAP measure of performance.  These items should not be reviewed in isolation or considered substitutes for the Company's financial
results as reported in accordance with GAAP.  Due to the nature of these items, as further described below, it is important to identify these items and to review
them in conjunction with the Company's financial results reported in accordance with GAAP.

The following table summarizes items that affected the Company's financial results during the periods presented.

FIRST QUARTER

2024

2023

Operating profit

$

1,294

$

1,470

LIFO charge

41

99

FIFO Operating profit

1,335

1,569

Adjustment for merger related costs (a)

175

40

Adjustment for opioid settlement charges (b)

-

62

Other

(11)

(2)

2024 and 2023 Adjustment items

164

100

Adjusted FIFO operating profit

     excluding the adjustment items above

$

1,499

$

1,669

(a)

Merger related costs primarily include third party professional fees and credit facility fees associated with the proposed merger with Albertsons Companies, Inc.

(b)

Opioid settlement charges include the settlement with the State of West Virginia.