On December 5^th The Kroger Company (KR) posted results for Q3, FY 2023 ending November 9^th 2024. Kroger beat on earnings compared to consensus estimates but fell short of sales expectations and also reduced guidance for FY 2024.

 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. In late February the FTC filed to block the transaction that is opposed by the Attorneys General of seven states and both major national unions representing workers. To comply with anticipated regulatory pressure Kroger and Albertsons have proposed selling 579 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.  The outcome of the proposed merger will be the subject of rulings by a federal court in Oregon and state courts in Washington and Colorado. The change in Administration will result in different policies by the FTC on M & A and regulation of competition that may alter the prospects for the merger.

 For Q3 Kroger reported earnings of $618 million on sales of $33,634 million with a diluted EPS of $0.84. For the corresponding Q3 of FY 2023, Kroger earned $646 million on sales of $33,953 million with a diluted EPS of $0.88.  Comparing Q3 of 2024 with the corresponding quarter of FY 2023, sales were 1.0 percent lower; Gross margin increased from 22.0 percent for Q3 FY 2023 to 22.9 percent for the most recent quarter. Operating margin fell from 2.7 percent in Q3 2023 to 2.5 percent for the most recent quarter. For Q3 2023 S&G was higher by $252 million compared to Q3 FY 2023. The P&L statement for Q3 FY 2024 noted a $20 million loss on investments compared to a gain of $26 million during the corresponding quarter in FY 2023.

In commenting on quarterly results, Rodney McMullen CEO stated, "Kroger achieved strong sales results in the third quarter led by our pharmacy and digital performance, which reflects the strength and diversity of our model. We continued to grow total households this quarter by delivering exceptional value for customers, with low prices, personalized offers and great quality Our Brands products, all through a seamless shopping experience”.

Referring to the current economic situation McMullin noted “While we expect the macroeconomic environment to remain uncertain near-term, the strength of our model gives us confidence in our ability to deliver value for customers and invest in our associates, while generating attractive and sustainable returns for shareholders."  

Addressing opposition to the proposed merger with Albertsons Cos. he opined  "As we await the courts' rulings in the regulatory challenge to the merger, we remain confident in the facts and the strength of our position. The food industry has always been competitive and will continue to be after this merger. We are committed to closing this merger because bringing Kroger and Albertsons together will provide meaningful and measurable benefits – lower prices, secure jobs and expanded access to fresh, affordable food – for customers, associates, and communities across the country."

Kroger closed the sale of its specialty pharmacy business on October 4, 2024, for $464 million. The sale reduced total company sales in the third quarter by approximately $340 million, compared to the same period last year, and annualized sales will be approximately $3 billion lower going forward. KSP was a low margin business. As a result, the sale of the business increased both Kroger's gross margin and operating, general and administrative costs as a rate of sales. It had no material effect on operating profit.

The Company released adjusted FY 2024 Guidance:- 

• Identical Store Sales growth of 1.2 to 1.5 percent excluding fuel,
• Adjusted EPS of $4.35 to $4.45. Was $4.60 to $4.80 on September 12^th.
• Adjusted FIFO Operating Profit of $4.6 billion to $4.7 billion. Was $4.6 to $4.8 billion on September 12^th.
• Capital expenditure of $3,400 to $3,600 million,

Comparable same-store sales for Q3 advanced by 2.3 percent (excluding fuel) compared to Q3 FY 2022; Digital sales were up by 11.0 percent;

On November 9^th 2024 Kroger posted total assets of $62,418 million of which $3,815 million comprised goodwill and intangibles. Long-term debt and lease obligations amounted to $24,811 million.  

The Kroger Company had an intraday market capitalization of $43,340 million on December 5^th 2024.  The Company has traded over the past fifty-two weeks in a range of $43.51 to $61.37 with a 50-day moving average of $57.66. KR trades with a forward P/E of 13.0. On December 4^th 2024 KR closed at $60.19 pre-release but opened on December 5^th post-release at $55.71. KR recovered to $61.22 by 11H00 EST.

Twelve-month trailing operating margin was 2.0 percent and profit margin 1.9 percent.  The Company generated a return on assets of 5.8 percent and 24.3 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.