On September 8th The Kroger Company (KR) posted results for Q2 of FY 2023 ending August 12th 2023. Kroger is the second largest retailer of groceries in the U.S. and is a pure supermarket play subject to the pressures of escalation in food costs, logistics and labor and the impact of inflation in common with national and regional competitors. Kroger has announced an intention of acquiring competitor Albertsons Cos. Creating an enterprise with 5,000 stores subject to FTC and DOJ approval and inevitable divestment of some assets. To comply with anticipated regulatory scrutiny Kroger and Albertsons have proposed selling 413 stores in 18 states to C&S Wholesale Grocers for $1,900 million. It is possible that other bidders including Aholdt-Delhaize N.V. will emerge as potential purchasers of some, all or a greater number of stores as directed by the FTC.
For the quarter, Kroger posted a reported loss of $(180) million on revenue of $33,853 million with a diluted EPS of $(0.25). The loss was attributed to increased SAG expenditure, a charge of $1,400 million to settle opiate drug claims and ‘shrinkage” attributed to organized theft. Kroger disappointed on the top line against a consensus revenue estimate of $34,640 million.
For the corresponding Q2 of FY 2022, Kroger earned $731 million on sales of $34,638 million with a diluted EPS of $1.00. Comparing Q2 of 2023 with the corresponding quarter of 2022, revenue was 12.2 percent higher. Gross margin increased from 20.9 percent to 21.8 percent. Operating margin declined from $954 million to a negative $(479) million for the most recent quarter.
In commenting on quarterly results, Rodney McMullen CEO stated, “The strength and diversity of Kroger's business model is delivering consistent results in what remains a challenged environment. By investing in price and providing more personalized offers, we are helping customers stretch their budgets and manage the ongoing effects of reduced government benefits, inflation and higher interest rates. Kroger is funding these investments by collaborating with vendors to deliver exceptional value, managing costs and growing alternative profit businesses”.
He concluded, “We are growing households as our associates are providing a full, fresh and friendly shopping experience across our seamless ecosystem. While we expect the environment to remain challenged going forward, we are committed to delivering exceptional value for our customers and investing in our associates, and by doing so, we expect to generate attractive returns for shareholders."
The Company release affirmed FY 2023 Guidance:-
- Identical Store Sales growth of 2.5 to 3.5 percent (excluding fuel and adjusting for Express Scripts))
- Adjusted EPS of $4.45 to $4.60
- Adjusted FIFO Operating Profit of $5.0 billion to $5.2 billion
- Capital expenditure of $3,400 to $3,600 million
- Adjusted free cash flow of $2,500 million to $2,700 million
Comparable same-store sales for Q2 increased by 1.0 percent (excluding fuel) compared to Q2 FY 2022 and digital sales were up by 12.0 percent.
On August 12th Kroger posted total assets of $50,202 million of which $3,801 million comprised goodwill and intangibles. Long-term debt and lease obligations amounted to $21,190 million.
The Kroger Company had an intraday market capitalization of $33,690 million on September 9th 2023. The Company has traded over the past fifty-two weeks in a range of $41.82 to $51.80 with a 50-day moving average of $47.47. KR trades with a forward P/E of 10.4. On September 7h 2023 KR closed at $45.52 pre-release and opened on September post-release at $47.14
Twelve-month trailing operating margin was 2.1 percent and profit margin 1.1 percent. The Company generated a return on assets of 3.9 percent and 16.2 percent on equity
At the end of FY 2022 The Kroger Company operated 2,726 stores with 2,252 pharmacies and 1,613 fuel centers, under 25 banners in 35 states and D.C. Kroger operates 34 food plants and 45 distribution centers with five Ocado fully automated fulfillment centers with as many as twenty planned.