On March 7th The Kroger Company (KR) posted results for Q4 and FY 2023 ending February 3rd 2024. Kroger beat substantially on earnings compared to consensus estimates but provided anemic FY 2024 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. 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 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 such as Ahold-Delhaize N.V. will emerge as potential purchasers of some, all or a greater number of stores as negotiated and subsequently approved by the FTC.
For the 4th quarter, Kroger reported earnings of $736 million on sales of $37,064 million with a diluted EPS of $1.01. For the corresponding Q4 of FY 2022, Kroger earned $451 million on sales of $34,823 million with a diluted EPS of $0.62. Comparing Q4 of 2023 with the corresponding quarter of FY2022, revenue was 6.4 percent higher; Gross margin increased from 21.7 percent to 22.7 percent for Q4 2023. Operating margin increased from 2.4 percent to 3.2 percent for the most recent quarter.
For FY 2023, Kroger reported earnings of $2,164 million on sales of $150,039 million with a diluted EPS of $2.96 For FY 2022, Kroger earned $2,244 million on sales of $145,258 million with a diluted EPS of $3.06.
In commenting on 4th quarter and FY 2023 results, Rodney McMullen CEO stated, “Kroger achieved strong 2023 results, in line with our long-term growth model and built upon three consecutive years of historic growth. As customers manage macroeconomic pressures, we are lowering prices and offering even more ways to save with personalized promotions and rewards. Our unique seamless shopping experience provides customers the products they want, when and how they want them, with zero compromise on quality, convenience and selection”.
He added, “We respect and appreciate our associates who are delivering a full, fresh and friendly customer experience. Over the last five years, we've made historic investments in associate wages, benefits and career development opportunities, including significant investments to help stabilize associates' future pension benefits”.
McMullin concluded, “We are increasing customer visits and growing loyal households through the strength of our retail business, which positions Kroger for more ways to drive sustainable future growth. We expect to continue our momentum in 2024 by delivering value for customers, investing in associates and generating attractive and sustainable shareholder returns."
The Company released adjusted FY 2023 Guidance:-
- Identical Store Sales growth of 0.25 to 1.75 percent excluding fuel,
- Adjusted EPS of $4.30 to $4.50,
- Adjusted FIFO Operating Profit of $4.6 billion to $4.8 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 Q4 decreased by 0.8 percent (excluding fuel) compared to Q4 FY 2022; digital sales were up by 10.0 percent;
On February 3rd 2024 Kroger posted total assets of $50,523 million of which $3,815 million comprised goodwill and intangibles. Long-term debt and lease obligations amounted to $20,882 million.
The Kroger Company had an intraday market capitalization of $36,320 million on March 7th 2024. The Company has traded over the past fifty-two weeks in a range of $42.10 to $55.53 with a 50-day moving average of $46.64. KR trades with a forward P/E of 11.7. On March 6th 2024 KR closed at $50.53 pre-release but opened on March 7th post-release at $53.33
Twelve-month trailing operating margin was 2.0 percent and profit margin 1.3 percent. The Company generated a return on assets of 5.8 percent and 17.8 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