On September 8^th The Kroger Company (KR) posted results for Q3 of FY 2023 ending November 4^th 2023. Kroger beat on both revenue and earnings compared to consensus estimates but cut FY 2023 same-store sales and EPS projections.

 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 all national and regional competitors. Kroger has announced the intention of acquiring competitor Albertsons Cos. This would create a merged enterprise with 5,000 stores subject to FTC and DOJ approval but with inevitable divestment of some assets. To comply with anticipated regulatory pressure Kroger and Albertsons have proposed selling 413 stores in 18 states to C&S Wholesale Grocers for $1,900 million. This strategy is in question given the history of the bankruptcy of Hagen that divested stores to facilitate the acquisition of Safeway by Albertsons. 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 negotiated and approved by the FTC.

 For the 3^rd quarter, Kroger reported earnings of $646 million on revenue of $33,957 million with a diluted EPS of $0.88. For the corresponding Q3 of FY 2022, Kroger earned $398 million on sales of $34,198 million with a diluted EPS of $0.53.  Comparing Q3 of 2023 with the corresponding quarter of 2022, revenue was 0.7 percent lower. Gross margin increased from 21.4 percent to 22.0 percent for Q3 2023. Operating margin increased from 2.5 percent to 2.7 percent for the most recent quarter.

In commenting on quarterly results, Rodney McMullen CEO stated, “Kroger's third quarter results highlight the strength and diversity of our business model in a challenged operating environment, as strong fuel performance and growth in our alternative profit businesses supported continued adjusted net earnings per diluted share growth.

McMullen noted, “As consumer spending tightens, we are focused on providing customers with exceptional value. By maintaining our long-term commitment to lower prices, personalized promotions and rewards, we are growing households and increasing loyalty, positioning Kroger for sustainable future growth. We appreciate our associates and continue to invest in wages, benefits and training, which is resulting in continued improvements in our customer experience”.

He concluded, “Our model's strength allows us to navigate many economic environments. We remain committed to balancing investments in associates and greater value for our customers while continuing to generate attractive and sustainable returns for our shareholders."    

The Company released adjusted FY 2023 Guidance:- 

• Identical Store Sales growth of 0.6 to 1.0 percent excluding fuel, (was 2.5 to 3.5 percent)
• Adjusted EPS of $4.50 to $4.60 (was $4.45 to $4.60) 
• Adjusted FIFO Operating Profit of $4.9 billion to $5.0 billion, (was $5.0 to $5.2 billion)
• Capital expenditure of $3,400 to $3,600 million
• Adjusted free cash flow of $2,500 to $2,700 million

Comparable same-store sales for Q3 decreased by 0.6 percent (excluding fuel) compared to Q3 FY 2022; digital sales were up by 11.0 percent; Delivered sales were up by 20 percent.

On November 4^th Kroger posted total assets of $51,021 million of which $3,806 million comprised goodwill and intangibles. Long-term debt and lease obligations amounted to $21,152 million.  

The Kroger Company had an intraday market capitalization of $31,390 million on November 30^th 2023.  The Company has traded over the past fifty-two weeks in a range of $42.10 to $50.40 with a 50-day moving average of $44.39. KR trades with a forward P/E of 10.0. On November 29^th 2023 KR closed at $43.64 pre-release and opened on November 30^th post-release at $43.15

Twelve-month trailing operating margin was 2.0 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