On November 30, 2023, The Kroger Co (KR, Financial) released its 8-K filing, detailing its financial results for the third quarter of 2023. The report reveals a company navigating through economic headwinds with a focus on long-term sustainable growth, as expressed by Chairman and CEO Rodney McMullen.
Financial Performance Overview
The Kroger Co (KR, Financial) reported a slight decrease in identical sales without fuel by 0.6% for the third quarter. However, excluding the effects of a terminated agreement with Express Scripts, these sales would have seen a growth of 1.0%. The company's earnings per share (EPS) improved to $0.88, up from $0.55 in the same quarter of the previous year. Adjusted EPS, which provides a clearer picture of the company's ongoing operations by excluding certain items, increased to $0.95 from $0.88 year-over-year.
Total company sales were marginally down at $34.0 billion compared to $34.2 billion for the same period last year, excluding fuel. The FIFO gross margin rate, excluding fuel, saw a slight increase of 3 basis points, primarily due to performance in Our Brands, sourcing benefits, and the terminated Express Scripts agreement, despite higher shrink and advertising costs and increased price investments.
Operational Highlights and Challenges
The Kroger Co (KR, Financial) faced increased operating expenses, with the Operating, General & Administrative (OG&A) rate rising by 32 basis points, excluding fuel and adjustment items. This increase was attributed to planned investments in associates, strategic growth initiatives, and the impact of the terminated Express Scripts agreement, which was slightly offset by cost savings initiatives and lower incentive plan costs.
The company's capital allocation strategy remains focused on generating strong free cash flow and investing in the business for long-term net earnings growth. The net total debt to adjusted EBITDA ratio improved to 1.40 from 1.61 a year ago, reflecting a stronger balance sheet. However, the share repurchase program has been paused to prioritize de-leveraging following the proposed merger with Albertsons.
Updated Guidance and Executive Commentary
For the full year of 2023, The Kroger Co (KR, Financial) has updated its guidance, expecting identical sales without fuel to be between 0.6% and 1.0%, with underlying growth of 2.1% to 2.5% after adjusting for the Express Scripts effect. Adjusted FIFO Operating Profit is projected to be between $4.9 and $5.0 billion, and adjusted net earnings per diluted share are forecasted to be between $4.50 and $4.60, including an estimated benefit from the 53rd week of approximately $0.15.
CFO Gary Millerchip commented on the company's ability to deliver consistent adjusted net earnings per diluted share growth despite near-term economic pressures and food-at-home disinflation. The company has raised the lower end of its full-year adjusted net earnings per diluted share guidance range, reflecting confidence in navigating current challenges.
The Kroger Co (KR, Financial) continues to lead with fresh initiatives and accelerate with digital transformations, focusing on enhancing the associate experience and living out its purpose to Feed the Human Spiritâ„¢. With nearly half a million associates serving over eleven million customers daily, the company remains dedicated to its mission and long-term financial health.
For a detailed look at The Kroger Co (KR, Financial)'s financial statements, including the Consolidated Statements of Operations, Balance Sheets, and Statements of Cash Flows, please refer to the tables included in the full 8-K filing.
Explore the complete 8-K earnings release (here) from The Kroger Co for further details.
